MGM Energy Corp MGMCF

Does one well prove out a play?

[geodude13]

Just reading the threads and I believe that should the well encounter commercial volumes of oil there will be a pop in price; I’m betting on it to be most favorable.  I don’t believe the pop will be as dramatic as some propose.  The reason for my opinion is that the market may place the following caveats on the Play:

1. One well only proves out the concept of the play; not the depth and breathe.  There are established norms for proving out the extent of the Play (step out wells; uniformity of pay; extent of isotropy, etc.).  One well provides concept information but does not de-risk the geologic quirks of natural systems.  The market will temper its enthusiasm until those issues are understood better.  Not to say the price won’t jump but it tends to pop and fall as the money follows newer opportunities.  I hope it pops like farml would like but I believe price won’t get to $2 this year.
2. The western Canadian Basin oil pipeline capacity is nailing every producer (heavy oil or bitumen more so) but access to market will factor into future economics for drilling up the area.
3. The NWT and Federal regulatory process is still stiflingly slow.  The majors know this and are adaptive but there is only so much that so few bureaucrats can do.  The depth of regulatory capacity to review application is limited and will be a pinch point.  If overwhelmed with development applications will be routed to a formal review process due to the potential for development to environmentally adverse in such a sensitively harsh environment.  The number of species at risk in the valley are surprisingly large.
4. Development infrastructure and resources are few in the area and locals will want it all and if it overwhelms capacity there will be recognition to intervene and procedurally slow development so that outsides do not get more than the locals perceive outsiders should.
5. This area is remote and is subject to seasonal work.  Heli-based logistics are likely to be employed but now the federal requirements for caribou protection impose restrictions when the access is allowed...further reducing the rate of development and introduces seasonality issues.
6. The pipeline capacity could be reached quickly if the wells drilled are good producers.
7. The issue of associated gas management is entirely unknown and could work against the rate of development.  Norman Wells and Tulita are two small a communities with limited consumptive capacity.
8. The environment is harsh and fragile; the greens could be in play and trigger EIA more frequently and with more public rigor.

I’m hoping most of these issues can be overcome but I believe the market will temper the share value growth with some or a few of these issues in mind.  Heres hoping for $1 or $2 or $5 or $20....

Regards,