Source: Quicksilver Resources
Quicksilver Resources Inc. (NYSE:KWK) has begun the initial steps of creating a separate midstream entity to support the company's 130,000 net acre project in the Horn River Basin of northeast British Columbia and positioning the company's Canadian assets for development success.
"We expect the company's value creation strategy for the midstream business will be accretive to our oil and gas returns, as was the case in the Fort Worth Basin through our successful implementation of our midstream strategy," said Toby Darden, Chairman of the Board of Quicksilver. "We have the pieces in place to ensure that our vast resource capture will move out of the Horn River Basin to the west through the Spectra system and to the south through the Trans Canadian pipeline system. We believe that creating this midstream entity will provide our lowest cost solution for gathering, treating and transporting our commodity to multiple sales points."
The first piece of this strategy was the construction of a 20-mile, 20-inch gathering line, which is now complete and awaiting tie-in to the Spectra system and is anticipated to be operational in May. The line will initially serve as the spine of Quicksilver's transportation from its Horn River Basin acreage, where the company has completed four gas wells to date and is at various stages of drilling and completing four additional wells.
These initial four wells are capable of producing more than 30 million cubic feet (MMcf) per day of natural gas, but are currently restricted to approximately 20 MMcf per day through a third-party line into the Spectra system. Upon tie-in of the 20-inch line the company expects production will be unrestricted and will flow through new compression facilities currently being commissioned.
With the execution on April 11, 2011 of an agreement with NOVA Gas Transmission Ltd., a subsidiary of TransCanada Pipelines Limited (TransCanada) we have initiated the second phase of our strategy to create a midstream business in connection with the Horn River Basin asset. Pursuant to that agreement, TransCanada will commence work on a 70-mile Horn River extension and Fortune Creek Meter Station, which will be located within Quicksilver's acreage. The Horn River extension is expected to be a 36-inch sales gas line to connect TransCanada's Fortune Creek Meter Station and Quicksilver's proposed treatment facility to TransCanada's Alberta System from the Cabin area of British Columbia. Completion of the Horn River extension is expected in mid-2014.
Quicksilver has committed to deliver its gas to receipt points on the Horn River extension pipeline. The TransCanada Fortune Creek receipt point will provide a low-cost transportation solution to move gas to the AECO hub. Access to the AECO hub, at favorable rates, is consistent with the company's strategy to ensure multiple markets for each of its developments.
Quicksilver has begun planning for construction of the initial phase of its Fortune Creek treatment facility to remove CO2 from the natural gas stream. Quicksilver has a long history of CO2 removal dating back to its operations in Michigan, where the company was at the forefront of implementing membrane technology. In its initial phase, the facility will have capacity to deliver 125 MMcf per day of natural gas to TransCanada and is expected to be operational by mid-2014. The facility is designed to be expandable in 125 MMcf per day sales increments to meet the company's growing production profile for the basin.
"These steps will create a midstream business that we believe will be the low-cost solution for gathering, treating and transporting natural gas from the Horn River Basin to multiple markets to achieve the highest possible netbacks," added Darden. "This entity will ultimately have its own capital structure and be separately financed. Quicksilver has a history of creating value by building assets in the upstream exploration and production sector of our business as well as in the midstream gathering, treating and transportation sector, and we expect this venture to follow that path."