Rigs to begin drilling in B.C. in Q4
A feasibility study into building a West Coast liquefied natural gas export facility will begin in September after a $1.07-billion partnership deal was signed early Tuesday by Calgary-based Progress Energy Resources Corp. and the Malaysian national oil company, Petronas.
Meanwhile, rigs will be con-tracted to begin drilling in the fourth quarter on the 60,000 hectares of B.C. covered by the joint venture deal.
Progress president and chief executive Mike Culbert said the final agreement was signed at 2 a.m. Tuesday after a marathon negotiating session in Calgary over the long weekend.
"It was a long weekend but very rewarding and obviously something we're very excited about at Progress," he said.
In the end, he said, the deal closely followed the framework agreement set in June in envisioning a 50-50 partnership on Progress's North Montney play, which has proved and probable reserves of 600 billion cubic feet, with the production to be dedicated to an LNG export terminal.
"We got our $267.5 million this morning for the down payment and now we'll get busy getting the rigs going in the fourth quarter and away we go," said Culbert, adding the negotiators were planning to play golf Tuesday afternoon to celebrate.
In June, Calgary-based Encana Corp. reported that a similar $5.4-billion shale gas joint venture with PetroChina had fallen apart because the parties could not agree on details in a final deal.
Analyst Kristopher Zack of Raymond James, who covers Progress, said the fate of the PetroChina joint venture probably weighed on the market but the two are "apples and oranges."
Progress shares closed at $13.82, down four cents, on Tuesday. The stock rose to $14.84 a few days after the joint venture was announced in June but have fallen since, in spite of 12 of 16 analysts in a Bloomberg survey rating it a buy with a target price of $17.43.
"I think it's a very good deal that hasn't necessarily been reflected in the market," Zack said. "I think what needs to happen is they to articulate what their revised growth objectives are going to look like for 2012 and I think you'll see that in the fall."
The LNG terminal study is expected to take about a year and a decision will be made then on whether to proceed, Culbert said.
Petronas, which has extensive LNG facilities around the world, will control the LNG company with 80 per cent ownership.
The partnership is proposing two trains each with capacity of 3.7 million tonnes per year of LNG or 600,000 cubic feet of gas per day to be built one after the other.
That's smaller than the Kitimat LNG proposal for two five million-tonne-per-year trains, the first phase of which is to cost $4.2 billion, including a related pipeline.
Kitimat LNG, owned by Encana and Houston-based partners Apache Corp. and EOG Resources Inc., is awaiting a National Energy Board decision on a 20-year export licence, for which a hearing was held earlier this year.
Culbert said he expects opposition to the terminal and the pipeline that will need to be built to get the gas to the coast.
"I think that's always the challenging part, the stakeholder relations, but there's no doubt natural gas has not the same degree of opposition as a crude oil line has," he said.
"The Kitimat project is a couple of years ahead of us, so it's forging a path down the pipeline right of way . . . We think it's a necessity for Canada - we have a very large resource and we need to diversify our markets. It will be a lot of work getting there but we think it will happen in time."
The partnership is estimating five to eight years to get approvals and build the LNG terminal.
The deal allows Petronas to share in the costs and rewards of developing Montney shale assets in the foothills of northeast British Columbia, on properties called Altares, Lily and Kahta.
Petronas was founded in 1974 and has invested in more than 30 countries.
