Nexen, Inpex form venture to develop BC shale gas

Nexen Inc. and a consortium led by Japan’s Inpex Corp. agreed to create a joint venture to develop unconventional shale gas assets in the Horn River, Cordova, and Liard basins in northeastern British Columbia. Terms call for Nexen to sell a 40% working interest in its northeastern British Columbia assets for $700 million.

Closing is expected in first-quarter 2012 after which Nexen will hold a 60% interest in the joint venture and will remain the operator. The remaining 40% will be owned through Inpex Gas British Columbia Ltd., of which Inpex owns 82% and JGC Corp. owns 18% interest.

The boards of Nexen, Inpex, and JGC approved the agreement. Canadian regulatory approval is required, and Inpex requires financing approval before completing the deal.

The partners plan to appraise the shale assets and make development decisions based upon economic conditions. Inpex already owns interests in LNG projects offshore Indonesia and Australia. In addition, Inpex is building a regasification terminal in Japan.

JGC is an engineering contractor having project management capabilities in refining and gas processing, LNG, and petrochemicals.

Nexen is drilling from an 18-well pad in northeastern British Columbia. Drilling is scheduled for completion in fourth-quarter 2012, increasing gross production volumes to peak rates of 155 MMcfd of gas in early 2013.

The partners will jointly investigate the feasibility of a potential downstream project, including LNG exports.

On a gross basis, the venture assets are estimated to contain 4-15 tcf of recoverable contingent resource in the Horn River and Cordova basins and another 5-23 tcf of prospective resource in the Liard basin, Nexen said.

Inpex holds a 76% working interest in the Ichthys LNG project offshore Australia and is the operator. The project, expected to deliver 8.4 million tonnes/year, is scheduled to come on stream in 2016 (OGJ Online, June 28, 2011).

In addition, Inpex has 30% interest and is acquiring an additional 30% interest from Royal Dutch Shell PLC in the Abadi LNG project offshore eastern Indonesia (OGJ Online, July 22, 2011).

Inpex is the operator of Abadi, which is expected to deliver 2.5 million tpy. The production volume from Ichthys and Abadi is equivalent to 15% of Japan's current annual LNG imports.

Partnership trend continues

The Nexen-Inpex venture is the latest in a series of partnerships in which international companies are joining Canadian companies on gas development projects. Many of the partnerships have expressed goals eventually to ship LNG to Asia.

Apache Corp. and EOG Resources Inc., both of the US, are working with Encana Corp. to build an LNG export terminal at Kitimat, BC.

Malaysian Petronas signed a $1 billion deal with Progress Energy Resources Corp. to buy a working interest in three properties in the Montey resource play in northeastern British Columbia (OGJ Online, June 3, 2011).

Penn West Exploration has a joint venture agreement with Japan’s Mitsubishi to jointly developl gas assets in Northeast British Columbia. That partnership has not yet outlined any LNG plans.

Previously this year, Encana and PetroChina International Investment Co. called off a proposed venture in Encana’s Cutbank Ridge assets in western Canada (OGJ Online, June 21, 2011).

Contact Paula Dittrick at paulad@ogjonline.com.

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