Chevron buys into Canadian LNG export project


Chevron is buying into two massive shale-gas fields in western Canada and a facility to ship that gas to Asian buyers, as the efforts to export North America's massive natural-gas resources speed up.

A Canadian subsidiary of Chevron is buying out two companies involved in the projects, EnCana Corp. and EOG Resources, and will become in equal partner with Apache Corp., the companies said Monday.

The companies did not disclose how much Chevron is paying for stakes in the planned liquefied natural gas export terminal and about 650,000 acres in two massive shale gas discoveries in northern British Columbia. But analysis by The Wall Street Journal suggests a purchase price of about $1.3 billion. Chevron declined to comment on the figure.

In recent years, energy companies have discovered so much gas in North America's shale rocks they have created a glut that sent prices for the fuel tumbling. So companies have been racing to try to export liquefied natural gas; LNG is created by cooling natural gas to 260 degrees below zero Fahrenheit, at which point it turns into a compact liquid and can be shipped around the world on giant tankers.

Meanwhile, demand in Asia for gas has soared and buyers there, including large power- generation customers, routinely pay several times more for gas than users in the US.

The Canadian project "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," George Kirkland, vice chairman of Chevron, said in a statement.

Apache and its two initial partners, EOG and EnCana, announced plans two years ago to build a $3 billion export terminal in Kitimat, British Columbia, but the project has run into strong competition. The United States is weighing allowing LNG export from the Gulf Coast and Alaska, and Canada is moving ahead with LNG exports from British Columbia.

Earlier this year, Royal Dutch Shell announced a competing LNG project, also in Kitimat, and quickly lined up financing from Asian gas buyers. The Apache project had secured a government export license, but struggled to find buyers for its gas.

Chevron's participation could resolve this problem. The California-based energy company has extensive experience building LNG terminals and marketing the super-cooled fuel to Asia. It has two large LNG projects in the works in Australia and contacts with large Chinese, Japanese and South Korean purchasers.

G. Steven Farris, chairman and chief executive of Apache, said Chevron's involvement "gives tremendous credibility to buyers" and will make it easier to sell the gas.

In addition, the costs of the project mean Apache needs to bring in a big, global company like Chevron, he said.

"The only private outfits that can develop these, with the amount of money needed, are major oil companies," he said, though he would not say when construction on the plant would begin.

Apache, a Houston-based company that has more global operations than many North American-focused shale operators, has the financial resources to remain in what will be a project that will take years to develop, he said, adding, "I think this has a tremendous long-term value potential."

EOG and EnCana both held a 30% stake in the Kitimat terminal, a pipeline to move gas from remote areas in British Columbia and 100,000 acres in the Horn River gas discovery. Both will sell these assets to Chevron and Apache, which already owned a 40% stake and will invest enough to increase its share to 50%.

Both EOG and EnCana said the sales will allow them to focus on their core energy-producing businesses.

In addition, Chevron is buying a 50% stake in 535,000 acres Apache has leased in the Liard Basin gas discovery, also in British Columbia, and in Horn River. Apache will net about $400 million after the various transactions close.

After closings of the deals, which are subject to regulatory review and are expected in the first quarter of 2013, Chevron and Apache will have equal stakes in the terminal, pipeline and gas finds. Chevron will operate the pipeline, LNG terminal and market the gas to Asian buyers. Apache will operate the gas drilling program.

Although not all of the financial details were released by the companies, enough were disclosed to determine approximate values that Chevron had assigned to both the LNG terminal and gas discoveries. The Wall Street Journal used these disclosures to develop an estimate of how much Chevron was spending.

Dow Jones Newswires

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