MGM Energy Corp. pressed forward on its goal to tap the Mackenzie Valley's natural gas resources following an agreement with EnCana Corp. to buy its stakes in the Umiak discovery and other Northwest Territories assets for C$170 million (US$154 million). The Umiak discovery is 15 kilometers (9.3 miles) from Imperial Oil's Taglu field, one of the anchor fields for the proposed Mackenzie Gas Project.

MGM was spun off from Calgary-based Paramount Resources Ltd. in January to hold its northern exploratory assets. MGM said then that if construction of the gas pipeline and related gathering system "is deferred, delayed or not approved, MGM will examine its available options to transport its natural gas to market, including the staged construction by MGM of an alternate pipeline and gathering system" (see Daily GPI, Jan. 29).

"Since MGM Energy was formed in January of this year, our stated business strategy has been to be an acquirer and consolidator of high quality oil and gas assets in the Mackenzie Delta and the Central Mackenzie Valley" said CEO Clay Riddell. "This acquisition is a first and very important step in the implementation of that strategy."

MGM President Henry Sykes noted that the Umiak discovery is the largest on-shore discovery in the Mackenzie Delta since the 1970s.

"The acquisition of such an asset is a natural fit with our business strategy as well as with our existing assets," Sykes said. "The combination of an attractive existing discovery, numerous prospects and a large body of high quality seismic data is, to our knowledge, unique in the Mackenzie Delta. We're especially pleased that we've been able to acquire these assets at a valuation level that makes sense for both existing and new shareholders."

The deal with EnCana gives MGM a 60% working interest in the Umiak discovery, including two discovery wells. Based on an internal MGM review of the currently available well information regarding these discoveries, the Umiak field contains a net mean contingent resource of 265 Bcf net (169 Bcf, low case, and 396 Bcf high case). MGM also estimates that the field may contain 100 million bbl of oil (gross), of which up to 25 million bbl (gross) is currently estimated to be recoverable.

EnCana also sold MGM its 60% interest in federal Exploration License (EL) 434, which is located south and west of the Umiak field. The EL comprises 56,600 hectares with a primary term expiring in 2011. A work commitment associated with EL 434 is C$40.2 million (gross) through 2011, and MGM's share would be C$24 million.

MGM also acquired interests ranging from 0.62% to 3.89% in 14 separate Significant Discovery Licenses (SDL) located in the Mackenzie Delta, both onshore and offshore. According to MGM, these interests represent an additional contingent resource of 15 Bcf and 1.2 million bbl of oil and natural gas liquids, net to MGM, as estimated by the National Energy Board. MGM said that "'while there are no plans in the near term to develop these SDLs, they provide a window on development throughout the Mackenzie Delta for the future."

In addition, MGM gained access to EnCana's extensive seismic database in the region, which includes 9,896 kilometers of 2-D seismic and 470 square kilometers of 3-D seismic, covering much of the Umiak discovery, EL 434, and extensive regions of the Mackenzie Delta.

MGM said it will finance the acquisition with cash on hand, existing credit and proceeds from an equity financing. Closing is expected by the end of the month.

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