Encana to acquire stake in Kitimat LNG export project in Canada

Source: Encana

Calgary-based Encana Corporation (TSX:ECA) (NYSE: ECA) has agreed to acquire a 30 percent interest, joining partners Apache Corp. (NYSE:APA) and EOG Resources (NYSE:EOG), in the planned Kitimat liquefied natural gas (LNG) export terminal, located on the west coast of central British Columbia, and the associated natural gas pipeline. This proposed Kitimat LNG export development is intended to open tremendous new market opportunities in the Asia-Pacific region for abundant supplies of Canadian natural gas. 

Expanding Canadian natural gas exports to new continents 

"New and plentiful natural gas supplies and reserves have created a remarkable opportunity to expand our well-developed North American energy trade to other continents. With Encana’s investment in this planned international trade facility, we are helping lead a continental push to deliver exports of abundant natural gas, for the first time from Canada, to overseas markets. We are pleased to join the current owners, Apache and EOG, in expanding trade, generating investment and creating new jobs and additional government revenues. We expect that this project will help advance North America’s natural gas economy across the Pacific to markets where demand is growing and natural gas prices are more closely tied to oil prices," said Randy Eresman, Encana’s President & Chief Executive Officer. 

Engineering and design work under way; initial export capacity planned at 700 million cubic feet per day 

The proposed Kitimat LNG export development, located about 650 kilometres north of Vancouver at Bish Cove near the Port of Kitimat, has planned initial capacity, from the first of two potential phases, of about 700 million cubic feet per day (MMcf/d) of natural gas, or about 5 million metric tons of LNG per year. 

The development includes construction of a new 36-inch diameter natural gas pipeline - Pacific Trail Pipelines - running 463 kilometres from the Spectra Energy natural gas transmission system at Summit Lake, B.C. to the planned Kitimat LNG export facility. Encana’s 30 percent interest in the development includes a capacity reserve of 30 percent in the Kitimat LNG export facility and matching capacity on the proposed pipeline. The partners expect to complete the front-end engineering and design for the LNG export facility later this year, after which the partners will determine plans for a capital investment decision for the first phase of the development. 

Project construction could begin in 2012, with exports potentially starting in 2015. The project is operated by Apache Canada Ltd., which will own 40 percent, with Encana and EOG Resources Canada Inc. each owning 30 percent respectively. Encana’s acquisition transaction is subject to receipt of appropriate regulatory approvals and satisfaction of other customary closing conditions. It is expected to close in the second quarter of 2011. 

Enormous natural gas resource potential in British Columbia 

Export volumes for the Kitimat LNG project are expected to be supplied by burgeoning natural gas resources in B.C. and Alberta - the Horn River Basin and the Montney geological formation. According to industry studies, recent B.C. discoveries indicate the province will have the resource capacity to more than double current production of about 2.8 billion cubic feet per day (Bcf/d) to more than 7 Bcf/d in the next seven to 10 years. This is more than sufficient to supply B.C., its current customers, and new markets opened by the Kitimat LNG export development. 

Kitimat LNG Project Milestones 

March 2011 - Encana joins Apache and EOG in developing Kitimat LNG export development
March 2011 - Kitimat LNG front-end engineering and design awarded to KBR
February 2011 - Apache and EOG acquire all of Pacific Trails Pipelines Limited Partnership
December 2010 - Apache files Canadian federal export license application 
December 2010 - EOG closes agreement on purchase of 49 percent of project
November 2010 - Documents fully executed for land leases with related agreements
November 2010 - Haisla First Nation votes overwhelmingly to approve land leases
May 2010 - EOG Resources Canada signs pre-acquisition agreement to purchase remaining 49 percent of project
January 2010 - Apache purchases 51 percent of project and becomes operator
January 2009 - Canadian provincial environmental assessment approval
December 2008 - Canadian federal environmental assessment approval

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