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New Canadian Shale Play Takes on Developers

Shell Signs Deal in Canada's Canol Shale

Written by Brianna Panzica
Posted June 29, 2012

A new shale play in Canada's Northwest Territories is attracting big players.

The Canol shale in Central Mackenzie Valley is not yet producing oil. It only has two wells, which were drilled last year. But it has brought in the likes of Husky Energy Inc (PINK: HUSKF), ConocoPhillips (NYSE: COP), and now Royal Dutch Shell (NYSE: RDS.A).

Shell's Canadian division is working with MGM Energy Corp. (NYSE: MGM) to begin developments in this play, funding two wells with a 75% interest in the license.

MGM Energy's president, Henry Sykes, expressed excitement about this new possibility:

“The play is new in the sense that it has become interesting and land has been taken up over the past year. Wells drilled in the Central Mackenzie Valley since the '30s have drilled through this shale reservoir but nobody ever stopped there because there was no way to produce oil from shale.”

But as hydraulic fracturing, injecting high-pressure solutions of water, sand, and chemicals into horizontal wells to create fissures in the rock, has improved as a way to extract these resources, many previously untouched reserves are cracking open.

This has been true of the Bakken shale boom in North Dakota, the Eagle Ford shale in Texas, and a number of other plays across the nation.

Natural gas prices have hit a ten-year low on the newly-recoverable abundance of resources now available.

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Sykes has estimated each well will cost around $10 million, and each will give Shell a 37.5% stake in MGM's exploration license.

The wells being planned have been dubbed the “First Earning Well” and the “Second Earning Well.” The first will be drilled in either the coming winter or the following one, and the second will be determined later.

From the Calgary Herald:

“We're very pleased to have Shell working with us and even more pleased that they are paying 100 per cent of the cost,” Sykes said.

Shell has the right to end the deal if MGM fails to obtain permits. MGM should know soon about a land permit and water license.

MGM was up 3.2% on Friday to $11.14. Shell also jumped 2.28% to $67.42.

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