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AltaGas, Painted Pony form strategic alliance to combine Montney gas production, new processing facility, to export from BC to Asia
Gary Park For Petroleum News
In one of the most decisive moves yet to launch exports of liquefied natural and petroleum gas from British Columbia, a gas producer and midstream company have entered a 15-year strategic alliance.
The two Calgary-based companies, Painted Pony Petroleum and AltaGas, said the definitive agreement will provide preferred access to international energy markets for Painted Pony’s production from the Montney resource play in northeast British Columbia.
In the first phase, AltaGas will build and operate a shallow-cut processing facility with capacity of 198 million cubic feet per day in the Townsend area, 60 miles north of Fort St. John.
The facility is expected to cost up to C$350 million and be in-service by late 2015. Commercial operation is still subject to regulatory approvals.
AltaGas Chairman and Chief Executive Officer David Cornhill said the alliance is a “testament to AltaGas’ strategic assets and capability, as well as Painted Pony’s confidence in our ability to connect producers to new markets, including Asia.”
Patrick Ward, chief executive officer of Painted Pony, said the two companies are “fully aligned with respect to the potential for Montney gas development and the timing required for achieving our mutual goals.”
He said the alliance presents “viable solutions” for providing a long-term marketing option for rapidly growing natural gas and gas liquids production.
Painted Pony goes pure play The deal came only a month after Painted Pony unloaded its oil resource plays in the Saskatchewan Bakken by selling the assets in that province for C$100 million to become a “pure-play” operator in the Montney formation.
The junior E&P company said all of its capital spending will now be earmarked for 130,000 net acres in the Montney to accelerate the pace of its production and reserves growth.
Painted Pony said its Montney acreage, where it has drilled seven net wells in the first half of 2014, consists of a thick, stacked over-pressurized play and liquids rich gas, positioning it to take advantage of any LNG project.
In the second quarter, Painted Pony produced 77 million cubic feet of gas compared with 39 million a year earlier, generating realized prices of C$4.97 per thousand cubic feet, up C$1.18 from the same period of 2013.
AltaGas will become the primary marketer for Painted Pony’s gas and gas liquids output from its British Columbia land base by seeking deals through its North American and global network.
Once the first phase of the processing facility is completed, the partners will consider building additional infrastructure in northeast British Columbia, including a possible second phase of the Townsend facility which could include a deep-cut system for enhanced recovery of gas liquids.
In return for providing the plant, AltaGas will pay C$50 million to buy 4.2 million Painted Pony shares.
Triton LNG project AltaGas and its Japanese partner, Idemitsu Kosan, are pursuing their Triton LNG project, which could see a terminal built at either Kitimat or Prince Rupert.
Canada’s National Energy Board has already agreed to issue a permit for Triton to export 2.3 million metric tons a year of LNG.
That joint venture is also working on a scheme to export LPG (mainly propane) from the recently acquired Ferndale LPG export terminal in Washington state and from a proposed new LPG terminal on the British Columbia coast.
Robert Kwan, an analyst with RBC Dominion Securities, said the AltaGas-Painted Pony arrangement is a positive strategic move.
“This transaction is another example of how AltaGas is strategically thinking about how to put the pieces together to expand its natural gas and NGL infrastructure base and create momentum behind its LNG and LPG export initiatives,” he said in a note to clients.
“While work still remains on the export initiatives, securing gas and liquids supply is a positive for those projects.”
Michael Harvey, another RBC analyst, said that although the Townsend plant decision was expected “we view the strategic alliance agreement as an incremental positive.”
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