MGM Energy Corp MGMCF

Difference between conventional and shale

[OilEng]

Hi Geodude13:

Good points.  Your research skills have helped me find a lot of great information such as the Sathu site. 

In replay to your e-mail:

1. Your questions about traps point out a major difference between shale and conventional HC deposits which is vital.  In conventional reservoirs such as the Norman Wells field and Summit Creek the oil has been squeezed out of the souce rock (the Canol) and migrated and been trapped into high porosity rock.  In shale, there is no trapping mechanism required as the shale is both the source and reservoir rock.  Since reservoir traps are rare and shale is the most abundant sedimentary rock the geologic risk is much, much lower. 
2. The risk of finding the Canol Shale is pretty low as there is a lot of well control in the area. Take a look at the Husky presentation available on the Sahtu website and it contains a map which shows all the wells.  The Canol fairway has been mapped out and looks like a big river which parallels the Mackenzie River. 
3. What determines whether the shale contains oil is the amount of organic content (TOC) which has been cooked into HC.  The cooking is the result of burial.  The amount of cooking is measured by a factor called R0.  The amount of cooking can result in oil, liquids rich gas or just gas.  The deeper the burial the higher the temperatures and the more gas. 
4. All the above has been mapped.  The oil window looks like a bulls eye within the Canol fairway mentioned above.   Husky and Conoco are in the centre of the bullseye and MGM is on the edge.   Farther south is gas and liquids rich gas. 
5. EL 466 (Shell farm-in) has the Canol on the western edge with the boundary just west of Tutila. 
6. You mentioned that MGM is drilling on the same strike as the Husky wells.  This is true, but a much more important fact is that the well MGM is drilling is offset by two old wells (I77 and I55) which have huge amount of Canol pay.  (75 metres of 15% porosity and water saturation 15%)  These are great numbers.  As a result, this well has a very high probability of hitting the Canol.  Of course this is why Shell is willing to pay 100% for two wells on block 466. 
7. About 1/2 of EL 475 and 474 and the parcel they picked up in the 2012 land sale are in the oil window.   The 2012 presentation by MGM gives you numbers for the OOIP.  As I have mentioned, I think the range of numbers and probabilities given in the presentation are pretty solid given the amount of well control and seismic availble.  The risky numbers are the recovery factors.  Are they 0% or 8% like the Bakken Shale?
8. EL 473 does not contain the Canol , while El 472, EL 468 and  EL 443 are in the gas window. 
9. The map of the oil window make it pretty clear why Shell partnered up with MGM.  They completely missed the oil window in the 2011 land sale.  They bought land in the gas window.  MGM is small, but it has very experience and well connected management and staff.  This is perhaps the most underrated factor in valuing MGM.
10. Recovery factors in shale are heavily aided by natural fractures as nature does a much better of busting up the rock than engineers can.  The Canol is between two mountain ranges and is heavily fractured by the tectonic uplift.  The Husky well H64 is naturally fractured which is a  confirmation of this important factor.  I believe that is why Husky is running a 3D seismic program.  This type of seismic allows you to build a very detailed picture of the fractures.  The horizontal wells will be drilled to tap into these fractures and the multistage fractures will further enhance permeabilty.  All this means good things for the recovery factor.  I am hopeful that the Canol can approach the Bakken recovery rates.  If you would out the amount of oil with 8% recovery factor you can see why the super majors are so hot on this play.
11. The wells will be drilled off pads as you mentioned.  In NE BC they drill 26 wells off one pad.  This dramatically reduces the costs and environmental impact.   If the Canol performs like the Eagle Ford and Bakken, the average 30 day production rate should be 1,000 BOPD per well.  The downside of shale oil is the rapid decline rates.  The initial one day production rates are 3 to 4,000 BOPD.  While there is lots of shale oil in North America, it is expensive oil.  The days of cheap oil are gone.  Shale oil economics need $100 oil.  If oil falls to $50 this play is uneconomic. 
12. I think you are correct about the solution gas being a problem.  It is a waste to flare it and they can't reinject it into the Shale as it is too tight. 
13. You may remember that the MVP was actually two pipelines: one for gas and one for liquids.  The MVP may get built yet, but only from Norman Wells south.  Let's hope that the NEB will not have to go through another hearing process to build the southern leg as the existing pipeline is way too small to accomodate an Eagle Ford type discovery.  Eagle Ford has ramped up to almost 400,000 bopd in 4 years and Bakken is at almost 600,000.