Apache, Chevron form JV for Kitimat LNG project
HOUSTON -- Apache Corporation announced that its subsidiary Apache Canada Ltd. has signed a broad agreement with Chevron Canada Limited to build and operate the Kitimat LNG project and develop world-class shale gas resources at the Liard and Horn River basins in British Columbia, Canada.
Chevron Canada and Apache Canada each will become a 50% owner of the Kitimat LNG plant, the Pacific Trail Pipeline and 644,000 gross undeveloped acres in the Horn River and Liard basins. Chevron Canada will operate the LNG plant, which will be located on the northern British Columbia coast, and the pipeline; Apache Canada will operate the upstream assets.
"This agreement is a milestone for two principal reasons: Chevron is the premier LNG developer in the world today with longstanding 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," said G. Steven Farris, Apache's chairman and chief executive officer.
"With experience developing LNG projects, marketing expertise and financial wherewithal, Chevron is the preferred coventurer to join Kitimat LNG," Farris said. "Apache has a proven record in finding and developing shale gas resources in Canada and is the logical operator for the upstream elements of the joint venture.
"We are pleased to expand our relationship with Chevron that began with the Wheatstone LNG project now under construction in Western Australia," Farris said. "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."
Encana and EOG Resources — currently 30% non-operating partners in Kitimat LNG and Pacific Trail Pipeline — will sell their interests to Chevron and exit the venture. As part of the transaction with Chevron, Apache will increase its ownership of the plant and pipeline to 50% from 40%.
Apache, an experienced producer of unconventional oil and gas resources, will operate the new joint venture's development of 220,000 gross acres in the Horn River Basin and 424,000 gross acres in the Liard Basin. Chevron will purchase a 50% interest in undeveloped upstream assets in the Liard Basin from Apache and other Horn River assets from Encana, EOG and Apache.
"At Liard and Horn River, we have built substantial positions in two of the most prolific shale gas plays in North America, with more than 50 Tcf of resource potential," Farris said.
In June, Apache announced long-term test results from three wells at Liard, including the D-34-K well, which was drilled to a vertical depth of 12,600 feet with a 2,900-foot lateral and a six-stage hydraulic fracturing completion. The 30-day initial production rate averaged 21.3 MMcfd, or 3.6 MMcfd per day per frac stage. The ultimate recovery from the D-34-K well is estimated to be 18 Bcf. "We believe this is the most prolific shale gas resource test in the world," Farris said.
As part of this transaction, Apache will sell to Chevron a 50% interest in its 100 percent-owned undeveloped Liard and Horn River acreage for $550 million. Apache will pay Chevron to equalize interests in other Horn River acreage owned by Apache, Encana and EOG. Apache also will pay Chevron to increase Apache's ownership of the LNG plant and pipeline projects to 50 percent. Apache's net proceeds are expected to be approximately $400 million. The transaction, which is subject to certain government approvals, is expected to close in the first quarter of 2013.
As is customary in LNG projects, Apache and Chevron will explore sales of equity interests in the plant and upstream assets to foundation customers.
Kitimat LNG, at Bish Cove on the northern British Columbia coast approximately 400 mi north of Vancouver, is currently completing front-end engineering and design, and early site work is under way. Current plans call for two liquefaction trains, each with expected capacity of 5 million tons of LNG per annum (about 750 MMcfd). Kitimat has received all significant environmental approvals and a 20-year export license from the Canadian federal government.