In a sweeping change of ownership, Chevron is taking control of Canada's Kitimat LNG project, with two of the three partners bowing out after failing in their attempts over the past year to secure offtake customers in Asia.
The shuffle announced Monday will see Chevron holding 50% of the joint venture through its wholly owned Chevron Canada, with Apache handing over the operator's role while raising its equity stake to 50% from 40%. Encana and EOG Resources will each relinquish their 30% stakes.
In addition, Chevron will acquire a 50% interest in the proposed Pacific Trail Pipeline, connecting the Spectra Energy pipeline from British Columbia's Horn River and Liard basins with a liquefaction plant and tanker terminal at the deepwater port of Kitimat on the northern British Columbia coast.
It will also gain a 50% interest in 644,000 acres of petroleum and natural gas rights in the two basins, seen as the major supply source for Kitimat's planned two-train system to export 10 million mt/year of LNG. Under the transaction, Chevron will acquire 110,000 net acres of the established Horn River play from the three partners and 212,000 net acres of Liard from Apache.
Although complete financial details were not released by the companies, the original cost of the project was set at $3 billion.
Apache said it would sell its 50% interest in the undeveloped Horn River and Liard acreage for $550 million.
Apache projected its own net proceeds at $400 million after paying Chevron to equalize interests in other Horn River properties it held in conjunction with Encana and EOG and to increase its ownership of the LNG plant and pipeline projects to 50%.
Leif Sollid, a spokesman for Chevron Canada, said his company was not disclosing the financial details of the transaction, which industry sources have valued at about $1.3 billion, or discussing the major challenges facing Kitimat LNG.
"Our focus is on working through the transition period with Apache and taking operatorship within 90 days," he said, adding Chevron was "very excited" to be adding Kitimat to its global LNG portfolio.
George Kirkland, vice chairman of Chevron Canada's parent company, said in a statement that Kitimat is an "attractive opportunity" to grow that portfolio.
"It is ideally situated to meet rapidly growing demand for reliable, secure, and cleaner-burning fuels in Asia, which are projected to approximately double from current levels by 2025," he said.
Long deemed the front-runner in the race to export LNG from Canada, Kitimat is armed with a 20-year export permit, the only license issued so far by Canada's National Energy Board to LNG proponents, and is currently working on front-end engineering and design.
But a final investment decision has been stalled while the partners sought a buyer for up to 20% of the project, including undeveloped land, among potential LNG buyers, aiming to lock in long-term customers and raise capital.
An investment decision that had originally been expected in 2011 was delayed as the joint-venture partners reviewed the size of equity they would be willing to offer buyers.
Apache Chairman and CEO Steven Farris said in a statement the agreement, which needs regulatory approval, is a milestone for two reasons.
"Chevron is the premier LNG developer in the world today with long-standing relationships in key Asian markets, and the new structure will enable Apache to unlock the tremendous potential at Liard, one of the most prolific shale gas basins in North America," he said.
Farris said Chevron is the "preferred co-venturer" for Kitimat because of its experience developing LNG projects, along with its marketing expertise and financial strength.
Apache has estimated its Horn River and Liard resource potential at 50 Tcf and reported that test results from one of three wells at Liard averaged 30-day initial production of 21,300 Mcf/d, or 3,600 Mcf/d from each of six fracture stages, placing ultimate recovery from the well of 18 Bcf.
Encana CEO Randy Eresman said his company's major objective since joining the project in March 2011 was to "ensure the progressing of this project towards its development."
Although Encana is no longer a direct participant "we continue to support LNG export as vital to diversifying markets for North American natural gas," he said.
