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Chevron sets the bar for Kitimat LNG Company wants the majority of its projected output under contract before sanctioning the project; announces Duvernay shale deal Gary Park For Petroleum News
Chevron wants up to 70 percent of output from its Kitimat LNG project under long-term agreements before it will be ready to make a final investment decision.
In a second-quarter conference call with analysts, George Kirkland, Chevron’s vice-chairman and executive vice-president, upstream, said that arrangement is unlikely to be in place before 2014.
“LNG marketing activities and engagement with potential foundation customers are underway,” he said.
“We’re focusing on Asian markets and aim to have 60 to 70 percent of the LNG volumes under long-term commitment prior to the final investment decision.”
Chevron recently became operator of Kitimat LNG, with a 50 percent stake. The balance is held by Apache.
Kirkland said Kitimat “has a considerable lead time” over other LNG developments in British Columbia.
“This project has permits (from Canada’s National Energy Board) in place for export and it has approval and permits in place for the site,” he said. “We’ve got most of the agreements for the pipeline route with First Nations (estimating the count at 15 or 16), so I think we’re in quite a lead on the early part of the project.”
Kirkland said the partnership has also done front-end engineering and design work for one train and has moved into the second train.
He said that should “help us a lot in dealing with those who want to buy gas. It puts our project in many ways ahead of others.”
Kirkland was emphatic that Kitimat prices will not be linked to Henry Hub natural gas prices.
“We expect the Henry Hub equivalent value will come through some equity sell-down. We do plan to have partners as buyers” by offering some volumes and interest in the plant as a combination, he said.
Kirkland said Chevron views that type of arrangement as superior to Henry Hub pricing, noting that Henry Hub, like any index, has variability.
He said the goal is to retain a first-mover advantage over competitors, but to proceed at the “right speed” by completing all of the necessary technical work and have all the commercial arrangements in place up to the 60 to 70 percent threshold.
Duvernay acquisition Chevron also announced it has signed a deal to acquire for an undisclosed amount all interest from Alta Energy Luxembourg and affiliates in 67,900 acres of the Duvernay shale formation of Alberta.
Chevron Canada president Jeff Lehrmann said the agreement strengthens the company’s land position in the prospective wet shale gas play where it has exploration leases covering more than 250,000 acres.
He said results have been encouraging from a multi-well exploration program for unconventional resources started in the second half of 2011 in the Duvernay, with initial production started last year on the 100 percent owned and operated leases.
Chevron Canada said it expects to drill six wells and complete five exploration wells on the acreage this year.
The company also has a 50 percent non-operated interest in 644,000 acres of petroleum and natural gas rights in the Horn River and Liard basins, which are operated by Apache as part of the 50/50 joint-venture on the proposed Kitimat LNG and Pacific Trail Pipeline projects.
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