Corridor Resources to suspend work on Old Harry Project, in the Gulf of St. Lawrence

HALIFAX, Nova Scotia -- Corridor Resources Inc. has announced that it has completed its integrated geotechnical analysis of the Old Harry prospect comprised of data from a controlled source electromagnetic survey (CSEM) and reprocessed two dimensional (2D) seismic. Old Harry is a large (43,000-acre), undrilled structure with four-way closure located in approximately 470 m of water in the Gulf of St. Lawrence, straddling the border of Newfoundland and Quebec.

Corridor purchased a licensed copy of a CSEM survey that was conducted in late 2017 over the Newfoundland side of the Old Harry structure. The analysis of the CSEM data proved to be more complicated than anticipated. This led Corridor to take the additional steps to utilize modern techniques to reprocess 762 km of its proprietary 2D seismic over the Old Harry structure (originally acquired in 1998 and 2002) and undertake an integrated geotechnical review with the aid of several senior consultants.

This comprehensive review revealed more complexity in the Old Harry prospect than previous analysis had suggested and resulted in three key findings. First, it was determined that the geology and geochemical/petrological analysis of the Old Harry structure is more complicated than previously understood. This has led the company to believe the play could be more gas prone than oil prone and the overall hydrocarbon accumulation could be less than originally estimated. Secondly, it was concluded that, in order to more adequately de-risk the prospect, a three-dimensional (3D) seismic survey should be conducted over the entire structure before drilling an exploration well. Third, despite renewed efforts, Corridor has been unable to date to attract a joint venture partner for the prospect. As a result of the foregoing, Corridor has determined there is no longer a viable path to drilling an exploration well on the prospect before the current exploration license on the Newfoundland side expires in January 2021. We reached this conclusion with the knowledge that the timelines for regulatory approvals for offshore projects are lengthy and are becoming increasingly challenging. As a result, Corridor has decided it would not be prudent to continue with additional capital spending on the Old Harry prospect and, accordingly, is suspending all further technical work and expenditures.

Concurrent with the decision to suspend work and expenditures, Corridor intends to make a formal request to the authorities in Newfoundland, Quebec and the Federal Government to: 1) grant a new license to extend Corridor’s land tenure on the Newfoundland side; and 2) undertake the legislative and regulatory steps necessary to clarify the status of Corridor’s exploration licenses in Quebec. If Corridor is successful in securing such regulatory relief, the additional time to its land tenure and regulatory certainty would enhance Corridor’s opportunity to solicit interest from prospective joint venture partners. Given the complexity of the Old Harry prospect, prospective joint venture partners will need more time to undertake a thorough review of the technical work conducted by Corridor to date and, if deemed necessary, conduct a 3D seismic program over the structure. If the regulatory relief successfully secured, Corridor would concentrate its efforts on attracting a joint venture partner to the Old Harry prospect. Committing any material capital expenditures in any future process to secure a partner is not anticipated.

On the Newfoundland side of the prospect, Corridor was granted a license in 2008. In 2011, Corridor registered an environmental assessment under the Canadian Environmental Assessment Act, SC1992, c37 (the EA) for the purposes of drilling a single exploration well on the Old Harry prospect. Due to lengthy delays in processing our EA application and uncertainty with First Nation consultation, Corridor was granted a new exploration license with a latest expiry date of January 2021. That new tenure has been legally challenged by a group led by environmental activists and a First Nation group, which matter is still before the courts.

Corridor holds two oil and natural gas prospecting licenses on the Quebec side of Old Harry. These prospecting licenses were suspended by the Quebec government effective March 29, 1999, while the Quebec Minister of Natural Resources undertook, with his federal counterpart, discussions “to reach an administrative agreement dealing with oil and natural gas exploration and development in the Gulf of St. Lawrence.” This agreement was ultimately reached on March 24, 2011, with the signing of the “Accord between the Government of Canada and the Government of Quebec for the shared management of petroleum resources in the Gulf of St. Lawrence.” Notwithstanding that this accord was struck over seven years ago, neither the Government of Quebec nor the Government of Canada has undertaken the steps necessary to pass legislation to enact regulations to govern Corridor’s land tenure in Quebec. Furthermore, Corridor has been precluded from undertaking any operational activities, namely additional seismic and CSEM, over the Quebec side, which covers approximately two thirds of the Old Harry structure.

The uncertainty regarding the Quebec land tenure further complicates the prospect, particularly if it is a natural gas accumulation, as economics of the project would most likely require full field development of the entire structure. Corridor has always expressed that it would not proceed with exploration or development on the Old Harry prospect unless it could attract a partner with the size, experience and expertise to act as operator of the project. As previously mentioned, we have recently approached numerous large oil companies to solicit joint venture interest. To date, the company has been unsuccessful due to a number of factors, including:

• As a result of modern data acquisition and processing techniques, most prospective partners would now require a 3D seismic survey done over the entire Old Harry structure before drilling an exploration well;
• Although not a unanimous view, many prospective partners believe the Old Harry structure is more likely to contain natural gas than oil. Given the recent abundance of natural gas in North America brought about by the recent success of shale plays, a natural gas accumulation is less attractive for deepwater exploration; and
• The lack of clarity regarding Corridor’s Quebec land tenure creates an uncertain environment for investment.

In its most recent marketing efforts, Corridor has not received interest in the Old Harry prospect from many international companies. In our view, this was due to a higher cost environment related to uncompetitive taxes and an increasingly cumbersome and unpredictable regulatory approval process in Canada.

Going forward, in addition to seeking regulatory relief for Old Harry, Corridor will focus its efforts to advance its exploration and production operations in New Brunswick while continuing to evaluate new opportunities to deploy its working capital, which currently stands at an approximately $58 million.