MGM Energy, Shell Enter Farmout Agreement

MGM Energy Corp. has entered into a farmout agreement with Shell Canada Energy ("Shell") pursuant to which Shell has agreed to fund the drilling and completion of up to two wells in the Central Mackenzie Valley Canol shale oil play to earn an interest in MGM Energy's Exploration Licence 466B.

The details of the agreement are as follows:

  • Shell will fund the cost to drill and complete a well to earn a 37.5% interest in EL466B (the "First Earning Well").
  • Depending on the timing of receipt of regulatory approvals, the First Earning Well could be drilled in the winter of 2012/13 or 2013/14.
  • After completing the First Earning Well, Shell will have the option of paying 100% of the costs to drill and complete a horizontal well (the "Second Earning Well") to earn an additional 37.5% interest in EL466B.
  • The parties have agreed to a drilling and completion plan for both wells, including coring and a multi-stage frac.
  • MGM Energy will be the operator of the First Earning Well and the Second Earning Well. After Shell completes its Second Earning Well commitment, it will hold a 75% interest in EL466B and will become the operator of the lands and the wells.
  • Shell has the option to terminate the farmout agreement if MGM Energy does not receive timely regulatory approvals to drill the First Earning Well.

MGM Energy filed a Land Use Permit and Water License application with the Sahtu Land and Water Board in May 2012 to drill a vertical well on EL466B and expects to receive a final decision in the near future.

"We're extremely pleased to have entered into this farmout agreement with Shell" said Henry Sykes, President of MGM Energy. "Shell has extensive experience with shale plays throughout North America and is one of the pre-eminent developers of shale plays in the world. We look forward to working with them in the Central Mackenzie Valley play. We are extremely excited about the Canol shale play, and this agreement provides us with the ability to assess its potential. We look forward to providing regulatory and operational updates on EL466B as events occur."