Apache, EOG Resources to buy 50% stake in Kitimat pipeline

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 9 -- Kitimat LNG partners Apache Canada Ltd. and EOG Resources Canada Inc. have agreed to purchase Pacific Northern Gas Ltd.’s 50% stake in the Pacific Trail Pipelines LP for $50 million.

Apache and EOG said they will pay Pacific Northern $30 million on closing—expected by the end of February—and the additional $20 million when they decide to proceed with construction of the Kitimat LNG export facility.

“Acquiring the [Pacific Trail Pipeline] is an important step in building a comprehensive system that will enable Apache and EOG to tap Asian markets for our abundant natural gas resources in the Horn River Basin and elsewhere in Western Canada,” said Janine McArdle, president of Kitimat LNG.

That view was underlined by PNG Pres. and Chief Executive Officer Roy Dyce, who explained his firm’s reasoning for the sale in a conference call with investors.

“In the future, North American markets will not be as reliant as they once were on natural gas supplied by pipeline from Western Canada. At the same time, significant new reserves are being added in Western Canada, including the Horn River and Montney fields in northern British Columbia,” he said.

“It is becoming increasingly clear that new markets are needed for these large, new supplies. The focus is shifting to export by ship to Japan and Korea and other Asian markets,” Dyce said.

Pacific Trails is planning to build a 463-km, 914-mm underground line in British Columbia from Summit Lake to Kitimat, the location of the planned LNG export terminal on the province’s northern coast.

Following the completion of the purchase, Apache will own 51% of the partnership and EOG, through its wholly owned subsidiaries, will own 49%.

PNG will operate and maintain the planned pipeline under a 7-year agreement with Apache and EOG with provisions for 5-year renewals. Apache and EOG also agreed to 20-year transportation service arrangements requiring them to use a portion of PNG's current pipeline capacity.

“Having this project under one operational manager—KM LNG Operating General Partnership—will provide an opportunity to integrate the supply chain from the point of natural gas production to the point of liquefaction,” said Apache Canada Pres. Tim Wall.

Apache and EOG plan to build the Kitimat LNG facility on Bish Cove, 650 km north of Vancouver, BC. The facility is planned for an initial output capacity of 5 million tonnes/year.

Contact Eric Watkins at hippalus@yahoo.com.

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