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Hands across the Pacific Malaysia’s state-owned Petronas latest Asian company to seek entry into BC’s shale gas plays; plans work on LNG export facility Gary Park For Petroleum News
The scramble by mostly state-owned Asian companies to lock up positions in Western Canada’s shale gas fields and lay the groundwork for possible LNG exports gained more momentum June 2 with the entry of Malaysia’s Petronas into British Columbia.
Assuming it gains regulatory approvals and feasibility studies yield the desired economic and logistical results, Petronas plans to invest C$1.07 billion over five years for a 50 percent stake in developing three North Montney properties held by mid-size producer Progress Energy Resources and provide standby equity financing of C$600 million for an LNG export joint venture.
The deal adds the name of Petronas to a list of other foreign participants in northern British Columbia — PetroChina, Korea Gas Corp., Mitsubishi and South Africa’s Sasol — pushing the total offshore investment in Canadian natural gas properties to C$9 billion in the past year.
Progress Chairman Dave Johnson said the “natural gas ‘gold rush’ in Australia is just about done,” making a shift to Canada “very possible.”
He said the current wave of activity points to a “very strong future demand for long-term unconventional gas” in the Pacific Rim region and British Columbia gas falls into that category.
Competitive environment noted Progress Chief Executive Officer Michael Culbert told analysts the objective now for the Petronas-Progress joint venture is to act swiftly in a competitive environment.
“It’s all about first-mover advantage,” he said. “Although there are numerous announcements out there for LNG export facilities, not many have a shovel in the ground yet. So Petronas is well-positioned to move this forward rapidly,” he said.
“Developing new export options for Canadian natural gas producers is a logical step in connecting our vast resources with growing Asian demand for environmentally responsible energy sources.”
Culbert said the objective is to develop a play that “has the longevity to support long-term contracts that you need to underpin an LNG facility. It is a very material play and really changes the dynamics of marketing natural gas in Canada.”
If an LNG project does go ahead, Petronas would be 80 percent operator and Progress would hold the balance.
Pending regulatory approvals, the deal is expected to close in the third quarter, at which point the two companies will start an LNG feasibility study of the economics, location and pipeline access to an export terminal on the British Columbia coast.
The Progress executives did not indicate whether they are committed to a standalone operation or might be interested in joining forces with the proposed 1.4 billion cubic feet per day Kitimat LNG project, operated by Apache with EOG Resources and Encana as junior partners, or Shell Canada’s talk of a 1.8 billion cubic feet per day project.
Potential upside There is no questioning the potential upside for Progress, which stands to enjoy the payoff for a decade of converting long experience in British Columbia into a goal of becoming a senior Canadian producer.
The long road has included a series of mergers and acquisitions, including consolidation of a land inventory in the Montney play through deals with BG Group and Suncor Energy.
Montney production has surged to 75 million cubic feet per day from 10 million cubic feet per day, but Petronas suggested that is barely scratching the surface.
It estimated the three Montney fields contain about 15 trillion cubic feet of contingent resources — a figure Culbert said was consistent with a mid-range British Columbia government estimate.
Petronas is committed to pay 25 percent, or C$267.5 million, at closing and cover 75 percent of Progress’ share of capital spending over five years.
Progress is confident the capital infusion from one of the world’s largest LNG players can put it on a five-year road to more than double both its reserves and production from 44,356 boe per day (including 233 million cubic feet per day of gas in British Columbia and Alberta) in the first quarter to 100,000 boe per day.
Culbert said North Montney has over-pressured, sweet gas and yields about 20 barrels of liquids for every 1 million cubic feet of gas.
Greg Kist, vice president of investor relations, said North Montney is a “distinct fairway” where the characteristics are identical and can be successfully developed using evolving technology.
Estimated 7,500 drilling locations Cormack Securities said Progress raised its proved plus probable Montney reserves by 386 percent last year to 600 billion cubic feet equivalent and has drilled only 156 net wells of an estimated 7,500 drilling locations.
Cormack said, prior to the Petronas announcement, that the Progress land position should interest “major oil and gas companies or national oil companies seeking to gain exposure to multi-TCF of captured natural gas resource potential.”
But Chris Theal, president of Kootenay Capital Management, said Progress does not have enough capital to develop its 900,000 acres of Montney land (the Petronas JV covers 150,000 acres).
Culbert said Progress’ decision to look for a partner attracted the greatest interest from Asia, but most of the contenders were only interested in acquiring Canadian unconventional gas opportunities, whereas Petronas added the critical LNG element.
He did not rule out further joint ventures over the long term, but said that for now Progress wants to be sure it can get the Petronas deal “right the first time.”
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