If an oil discovery is declared in the Canol play, does it make a sound?
The NWT oil and gas regulator (OROGO) issued a Significant Discovery Declaration in June – the first to be made post-devolution – in relation to an exploratory well near Tulita on the East Mackay lease held by the now non-existent MGM Energy in partnership with Shell.
The application for the declaration was made in December 2013, roughly five months before MGM, a struggling junior with properties in the Beaufort and Sahtu regions of the NWT, announced it would be folding and absorbed back into its original parent company, Paramount Resources Ltd.
Over two years later, OROGO says the company’s well test results suggest the existence of an accumulation of hydrocarbons with the potential for sustained production. The discovery area goes beyond the MGM-Shell I-78 well to encompass additional lease areas held by MGM, Shell and Husky Energy.
OROGO executive director Jamie Fulford said any or all of the companies whose leases overlap with the discovery area can apply for a Significant Discovery Licence (SDL), granting them exclusive rights to exploration, drilling and production on the portion they hold rights over.
But when it comes to pursuing further exploration in the Canol play, not a single company seems to be swayed by the recent declaration.
“As we’ve said before, Slater River remains part of our long-term growth portfolio,” Husky spokesperson Kim Guttormson replied in a curt email to the Journal’s queries on the discovery.
Shell, while pleased with the discovery, said it has also secured the area as merely a long-term opportunity.
“It is not a current priority for Shell,” a spokesperson told the Journal.
Paramount – the other de facto owner of the test well – didn’t respond to questions about the panel’s announcement.
“Stranded resources are of no value to anybody,” former MGM president Henry Sykes told the Journal back in 2014 on the eve of the company’s shutdown.
The company had complained regularly about the costs of doing business in the territory, from the lack of infrastructure to the regulatory system. Shell ditched MGM in late 2012 after an application to do exploratory horizontal fracturing, or fracking, was sent to environmental assessment. Both companies said it was too early to finance a full public review.
MGM left its six leases in the Sahtu totalling approximately 318,000 hectares to Paramount, along with a string of leases in the Beaufort Delta. Two of the leases, located near Tulita, are owned in partnership with Shell.
Sustained production would require fracking: panel
Vertical well I-78 was drilled and hydraulically fractured – vertically – over the winter of 2012-13. While the review panel found the results showed enough evidence to support the potential for sustained production, it noted that horizontal fracturing would be required to realize that full potential. If fracking is somehow prevented, the panel said the declaration could be withdrawn.
“The panel understands that very tight formations such as the Canol Formation are typically developed by drilling horizontal wells, which are then stimulated by extensive hydraulic fracturing to achieve hydrocarbon flow from the formation into the wellbore at desired rates. It is not surprising that the I-78 well, drilled as a vertical well and with a limited hydraulic fracturing stimulation demonstrated limited inflow of hydrocarbons,” the report reads.
“In the absence of a more substantial hydraulic fracturing stimulation of this geological feature and flowing back to a more complete recovery of hydraulic fracturing fluid, there remains some uncertainty as to the significance of the hydrocarbon accumulation indicated by the I-78 well,” the panel continued.
“Being able to achieve effective fracturing of the formation will be critical to recovering hydrocarbons from the Canol Formation. If technical or other reasons limit the ability to effectively fracture it, the panel notes that this declaration could be revoked or that the significant discovery area could be decreased.”
Land Corp. worried about slowdown
During the hearing process, the review panel heard concerns from the Tulita District Land Corp. (TDLC) that a declaration could give companies – if issued the subsequent licences – indefinite tenure over Sahtu land without requiring work commitments – or access and benefit agreements – which they said could further stagnate oil and gas development in the region.
“The terms under which a significant discovery licence are granted may put the TDLC at a competitive disadvantage in attracting industry interest to develop TDLC’s oil and gas resources,” the panel’s report notes.
The panel wrote that it “sympathized” with the land corporation’s concerns around a slowdown in economic activity, but said oil and gas legislation in the NWT gives the regulator no discretion to consider such issues when issuing a significant discovery declaration.
“Such considerations are undoubtedly of economic importance to the TDLC but are not matters which the panel may take into consideration when making its decision,” the panel wrote in its report.