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Mitsubishi targets B.C. gas deposits Its second entry into Canada’s oil, gas sector, the move bolsters prospects of establishing country’s first LNG export project By Gary Park For Petroleum News
Japan has joined South Korea and China in a multi-billion dollar Asian parade into Western Canada’s unconventional gas and oil sands region.
Industrial conglomerate Mitsubishi formed a joint-venture August 24 with Penn West Energy Trust for an initial outlay of C$850 million to pay for assets and develop shale gas deposits in the Cordova Embayment of northeastern British Columbia – the smaller cousin of the more advanced Horn River Basin. It estimates the total investment could reach C$3.8 billion over 15 years.
The deal gives Mitsubishi a role in 550,000 gross acres in B.C. (120,000 acres in Cordova) that includes a 50 percent working interest in the Wildboy conventional gas play which produces 30 million cubic feet per day. It also gives the Japanese company a gas processing facility, a sales gas pipeline connecting to a TransCanada gathering system and other related infrastructure.
It’s Mitsubishi’s second entry into Canada’s oil and gas sector, further bolstering prospects of establishing Canada’s first liquefied natural gas, or LNG, export project.
In early 2009, Mitsubishi, which handles about half of the LNG imports to Japan, agreed to purchase 1.5 million metric tons a year of the 5 million metric tons of capacity planned for the Kitimat LNG terminal, which is designed to process 700 million cubic feet per day of gas, most of which is expected to come from northeastern British Columbia.
Apache operator of Kitimat LNG Once privately-owned, Kitimat LNG has been taken over by U.S. independent producers Apache, as 51 percent operator, and EOG Resources, both of which have substantial holdings in the Horn River Basin shale gas region, widely rated as second only in size to the Barnett Shale in Texas.
Penn West said the joint-venture with Mitsubishi will “accelerate the exploration and development” of the 936,000 acres of Cordova land, which was quietly assembled in 2006 at a time when the attention was concentrated on the scramble to secure positions in Horn River, which covers 3.16 million acres.
Penn West (which is due to convert to a tax-paying corporation later this year), Canadian Natural Resources and Nexen are operating experimental Cordova schemes targeting Devonian-age shale in an area east of locations that have well-established Devonian Jean Marie production and deeper targets such as Slave Point and Pine Point carbonates.
More than 325 wells have been drilled in the Cordova basin, but only a handful have targeted shale gas and most of that information remains confidential, although it is scheduled to be made public within a couple of years.
From what limited information is available, the Cordova shales are “quite rich looking” and are shallower than Horn River, said Warren Walsh, a senior petroleum geologist with the B.C. government.
David Molinski, a principal with British Columbia-based OnPoint Consulting, cautioned that there is much still to learn about the Cordova rock, notably how it will respond to hydraulic fracturing and other technologies to release the gas.
Trail of Asian investments The Penn West-Mitsubishi deal extends a trail of Asian investments over the past year in Canada’s upstream:
• In early 2010, Encana reached an agreement with Kogas Canada, a unit of Korea Gas Corp., involving a C$565 million investment over three years to earn a 50 percent interest in 154,000 acres in Horn River and 129,000 acres in the Montney tight gas formation. (In mid-2009 Kogas reached a memorandum of understanding with Kitimat LNG covering 40 percent of the planned output from the LNG project).
• In June, Penn West struck a deal with sovereign wealth fund China Investment Corp. which will buy Penn West equity for C$435 million and invest C$817 million to help develop the trust’s Peace River oil sands deposits in northwestern Alberta.
• In July, Encana and China National Petroleum Corp. opened negotiations targeting annual joint-venture investments of C$1 billion-C$2 billion to develop portions of Encana’s B.C. gas plays in Horn River, Greater Sierra and Cutbank Ridge.
The Canadian companies view these deals as their best hope of accelerating development of the remote plays and using the Asian investments to lower costs, reduce risks, increase capital efficiencies, improve project returns, optimize production techniques and tap into gas prospects that would otherwise remain dormant for years.
Much now hinges on whether routes can be opened to Asia in the face of mounting opposition to tanker traffic off the B.C. coast from First Nations and environmental groups.
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