Chevron buy-in rejuvenates Canadian Kitimat LNG
US oil and gas major Chevron is to join the proposed 10m tonne per annum (mtpa) Kitimat LNG project in Western Canada as 50% owner. Calgary-based gas producer Encana and US-based driller EOG Resources are exiting the partnership.
Encana and EOG Resources, which each held 30% non-operating interests in Kitimat LNG and the planned 463km Pacific Trail Pipeline venture, will sell their interests to Chevron. Chevron will then transfer 10% of this stake to Apache, meaning Apache also becomes a 50% owner, adding to its existing 40% stake.
The deal, which was announced late last month, covers ownership of the planned LNG plant, the Pacific Trail Pipeline and 644,000 gross acres of undeveloped land in the Horn River and Liard basins. Chevron will become operator of the plant and pipeline, while Apache will retain operation of the upstream development.
Chevron will also lead the LNG marketing for Kitimat, which could reinvigorate discussions with offtakers that have so far stalled development of the project.
In the project's upstream development, the assets include 220,000 gross acres in the Horn River basin and 424,000 gross acres in the Liard basin. Apache will take $400m for its upstream assets sold to Chevron.
Final figures were not disclosed for the amount Chevron paid to Encana and EOG for the upstream development and equity stakes.
In a similar deal done earlier in December, Encana paid PetroChina C$2.18bn ($2.21bn) for a non-controlling interest in 445,000 acres in the Duvernay play.
Chevron to lead LNG marketing
"We are pleased to expand our relationship with Chevron that began with the Wheatstone LNG project now under construction in Western Australia," said Apache CEO G Steven Farris in a statement. "Kitimat LNG is the first mover among British Columbia LNG projects, and we expect the momentum of this project will accelerate with this new joint venture."
Market speculation around a major oil and gas company stepping into the Kitimat LNG project has been circulating for some time, as attempts to sign up long-term buyers had faltered despite this being the first project to achieve a Canadian export licence, in late 2011.
The Apache-led marketing team was attempting to negotiate offtake contracts on an oil-linked contract basis, which was understood to be thwarting the completion of offtake agreements as Asian buyers insisted on gas hub indexation.
A Chevron spokesman said the project continues to target the Asia-Pacific region for primary customers and would secure a significant amount of the gas under long-term pricing commitments before reaching a final investment decision.
"We are confident in the economic value and growth potential of the Kitimat LNG project," the spokesman said. "LNG projects outside the US are unlikely to be built unless they have the long-term surety of oil-linked pricing to underpin their capital commitments."
Kitimat project costs unclear
Chevron has experience of undeveloped, greenfield export projects from Australia, where it has faced significant cost overruns.
Costs recently jumped to reach $52bn - $15bn over budget - on the 15.8mpta Gorgon project in Australia.
"Each project has its own challenges based on where that project is in the development timeline, as well as its location geographically. We'll bring our lessons learned and best practices from the development of Gorgon and Wheatstone projects to date, and apply that expertise to the Kitimat development," the Chevron spokesman added.
Rival Shell's LNG Canada project developed near Kitimat has an estimated $12bn project total cost.
Kitimat LNG must still complete its front-end engineering and design (FEED) study, which will help firm up the cost figure, as well as finalise marketing agreements, an Apache spokesman said.
The proposed two-train Kitimat LNG facility initially targeted a start-up date around 2017, but has since lapsed in committing to a final start-up timeline until FEED and marketing commitments are in place.
The transaction is expected to close in the first half of 2013, pending Canadian regulatory approvals.
A 90-day transition period will take place to incorporate Chevron into the Kitimat project, the Apache spokesman said.
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