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Progress, Malaysian firm strike $1.07-billion deal for B.C. natural gas
PrintCALGARY - Progress Energy Resources Corp. is the latest Canadian oil and gas company to join forces with a global partner in northeastern British Columbia's burgeoning natural gas scene.
The Calgary-based company (TSX:PRQ) announced Thursday it has struck a $1.07 billion development deal with Malaysia's national oil company, Petronas, that could eventually lead to a new liquefied natural gas export terminal on Canada's West Coast.
"This is a very monumental day for Progress," chief executive officer Michael Culbert said in an interview.
"We're thrilled to death about this transaction and what it means for Progress in the future."
The deal, Petronas's first entry into the Canadian energy sector, is slated to close in the third quarter.
Progress stock rose on the news, gaining nearly 4.7 per cent — or 65 cents — to $14.63 on a volume of nearly eight million shares in afternoon trading on the Toronto Stock Exchange.
Progress joins an ever-growing list of Canadian companies to enlist the help of deep-pocketed international partners.
Encana Corp. (TSX:ECA) has a joint-venture deal with PetroChina for its holdings in northeastern B.C. Late last year, Talisman Energy Inc. (TSX:TLM) linked up with South Africa's Sasol in the same region. Penn West Exploration (TSX:PWT) is working with Japan's Mitsubishi on its shale holdings.
"Canada clearly is very much on the radar screen of international companies because of its resource wealth and its strength right now," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
Under its agreement, Progress will sell Petronas 50 per cent of its working interest in its Altares, Lily and Kahta properties in the foothills of northeastern British Columbia. That land is in the Montney formation, a prolific shale formation that stretches through parts of Alberta and B.C.
The agreement also gives both companies the option to develop liquefied natural gas export capacity in British Columbia. That would enable the natural gas to be condensed into a liquid and sent by ship to overseas markets.
In North America there is an enormous disparity between robust crude oil prices and the rather anemic value of natural gas. In Asia, however, natural gas prices are more akin to crude prices, said Edward Kallio, director of gas consulting for Ziff Energy Group.
"So it makes for a really good arbitrage between cheap North American gas and more pricey Asian natural gas," Kallio said of the Progress-Petronas deal.
Petronas has more to offer Progress than its wallet— it also has global expertise in the liquefied natural gas market (LNG), said Culbert.
"Rather than just dealing with one company, one country, Petronas has some of the largest market penetrations throughout Asia," he said in the interview.
Under the terms of the deal, Petronas will pay 25 per cent of the pricetag — about $267.5 million — in cash and 75 per cent by assuming Progress's share of future capital spending on the North Montney joint venture over the next five years to a total of $802.5 million.
"Petronas views the acquisition as a highly attractive opportunity, paving its entry into the North American shale gas industry while at the same time further strengthening its position as a leading global LNG player," the company said in a release from its headquarters in Kuala Lumpur, Malaysia.
Under the joint agreement deal, Progress would remain operator of the Montney lands, while Petronas would operate and own 80 per cent of the possible LNG venture.
The two companies would also explore other potential natural gas projects in Western Canada.
Encana, along with U.S. energy companies Apache Corp. (NYSE:APA) and EOG Resources Inc. (TSX:EOG), are already working on an LNG export terminal in Kitimat, B.C.
Engineering and design work is underway on the Kitimat terminal, which will have an initial capacity of 700 million cubic feet per day. The three companies could begin exporting gas in 2015.
