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Wyoming GTL Plans Face Renewed Uncertainty

With the pullout of a natural gas supplier, plans for a gas-to-liquids (GTL) plant for turning natural gas into diesel fuel in Cheyenne, WY, have hit another potential roadblock, but its principal backer says the $1.8 billion project will move forward.

Denver-based Escalera Resources has given up its option to supply up to 75% of the proposed plant's natural gas supplies, citing low gas wholesale prices and reduced cash flows as wreaking havoc with its borrowing abilities. The company is asking Wyoming GTL for the return of its $1.4 million advance for engineering studies, but the sponsor is balking.

Meanwhile, two other partners in Wyoming GTL have formed a competing company, GTL Partners LLC, seeking to build up to three plants in Wyoming.

The state legislature in Wyoming has been pushing legislative proposals to encourage construction of GTL plants, despite the fact that major GTL projects have been canceled or postponed by major backers such as Royal Dutch Shell and Sasol Ltd. (see Shale Daily, Feb. 10; Daily GPI, Jan. 29).

A letter agreement that Escalera signed with Wyoming GTL in 2014 expired earlier this year, leading the Denver gas producer to ask for its advance money back, and eventually filing a lawsuit seeking the repayment. In an April 15 10-K filing with the Securities and Exchange Commission (SEC), the company said the impact of lower gas prices has impaired Escalera's ability to obtain additional financial resources due to its existing capital structure.

"Due to the current economic conditions, we have not budgeted for any capital projects in 2015, and we will assess opportunities on an individual basis," according to the SEC filing. "If natural gas prices improve significantly, we may drill and complete up to five production wells and two injection wells during the second half of 2015."

Earlier this month, Escalera reported a net loss of $11.3 million (negative 83 cents/share) last year, compared to a net loss of $16.8 million ($1.48/share) in 2013. Local news reports speculated that Escalera was considering a bankruptcy filing. A call by NGI Monday to the company's CFO was not immediately returned.

Escalera CEO Charles Chambers told local news media in Wyoming that the economics for the GTL plant have changed significantly. Generally, plants converting natural gas to diesel fuel depend on wide spreads of prices between the two fuels, and the price difference has narrowed with the steep global oil price decline.

Nevertheless, Wyoming GTL officials have told local news media that they will move ahead with plans for the Cheyenne plant, aiming to begin construction next year and open the plant in 2019. Wyoming GTL said it has a licensing agreement for the technology that will be used in the plant.

The lack of that licensing agreement earlier caused two other participants to break off and form GTL Partners, which is pursuing a network of three GTL plants in Casper, Evanston and Cheyenne. Each plant is estimated to cost $1.6 billion.

"The company is currently negotiating a multi-plant, license and engineering re-use agreement for certain  technologies that allow the [GTL Partners] to build a series of plants using the same common design," the company states on its website.

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