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Vol. 19, No. 16 Week of April 20, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Treading carefully

Imperial, partner with majority owner ExxonMobil, won’t be rushed into BC LNG

Gary Park

For Petroleum News

Imperial Oil has never been drawn by a herd mentality in building its Canadian operations and shows no signs of changing that careful approach when it comes to deciding on an LNG project for British Columbia.

In partnership with its 70 percent owner ExxonMobil, Imperial is putting out the word that a final verdict on its WCC LNG project could be years away.

Not that Imperial lacks the resources or the financial means to proceed, starting with its 540,000 net acres of land prospects in the Horn River, Montney and Duvernay formations of British Columbia and Alberta which hold a reserve potential of 20 trillion cubic feet.

Based on that resource, it has already secured a National Energy Board permit to export 30 million metric tons a year of LNG over 25 years.

But, from this point on it will take a thorough approach to developing options for what it hopes could be a “large-scale export opportunity,” led by Chairman, President and Chief Executive Officer Rich Kruger, who assumed his post last year after years working for ExxonMobil in Russia, Southeast Asia and the Middle East.

That experience put him in the forefront of those able to assess who else is competing for a piece of the global LNG action.

What he brings to the table is a belief that Imperial will need more natural gas resources than it already controls, although he will not say whether the company’s stranded reserves in the Mackenzie Delta, that would have underpinned its operator role in the Mackenzie Gas Project, could find a place in the WCC project.

But he said that an LNG proposal cannot not have enough quality gas resources.

More important now is the time that will be needed to evaluate the company’s existing acreage and assess its LNG potential, especially since Imperial’s C$3.1 billion takeover a year ago of Celtic Exploration, with the greatest prize in the transaction identified as 13 tcf of potential gas in the Montney area of western Alberta.

That includes a selective program of drilling to understand “where the highest-quality, best portions of the acreage are and where we’ll get the highest profitability.”

Kruger is not swayed by those who believe LNG from Canada could fetch US$14-$18 per thousand cubic feet in Japan or South Korea.

The company has indicated that answers to questions such as the possible commercial returns from LNG exports, engaging governments on fiscal and regulatory matters, evaluating pipeline options from the gas fields to the British Columbia coast and choosing a site for an LNG terminal as well as scoping that facility’s size and cost are part of an undertaking that could take several years to complete.

Paul Masschelin, Imperial’s senior vice president of finance, told an investor conference in New York earlier in April that the time is needed “before we will find ourselves in a position to determine whether an LNG opportunity on the West Coast of Canada can, or would be an attractive opportunity to pursue.”

Despite receiving an export permit, Imperial and ExxonMobil are still in the “very early evaluation stages,” he said, noting that LNG ventures are very complex projects.

Kruger told reporters Imperial has no intention of rushing decisions because it’s “afraid we might miss out. ... It has to be a quality project. All aspects have to fit ... not least of which is the fiscal and regulatory regime” which the British Columbia government has yet to finalize.

Offering what could be a mantra for Imperial and ExxonMobil, he said that proceeding with a project will hinge on whether the partnership believes “there’s value and a place in the market (otherwise) it won’t go.”

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