After nearly two decades of mastering turbulent markets for natural gas and liquid byproducts, a Calgary fixture of energy services is making a fresh start in the New Year on taking a leading role in the next generation of Canadian supplies.
Veresen Inc. expects to close in first-quarter 2015 a deal that will secure a position in northern British Columbia (BC) shale development including built-in growth if Pacific Coast liquefied natural gas (LNG) export terminal projects are built.
The deal is a series of transactions that was unveiled just before Christmas as a quick way for beleaguered EnCana Corp. to “unlock” value by selling BC processing sites and pipelines. Encana and its Cutbank Ridge Partnership with Mitsubishi Corp. obtained C$412 million (US$350 million) for drilling into liquids-rich shale gas deposits.
Veresen partnered with private equity house Kohlberg Kravis Roberts & Co. from the United States to scoop up the properties with an equally owned partnership that takes a long-range view of BC prospects. As Veresen Midstream LP, the pair secured rights to grow the BC assets by building up to C$5 billion (US$4.2 billion) in processing facilities over 30 years for Encana and Cutbank. The producers agreed to pay service fees.
The agreement covers development of a prized tract of 240,000 acres (375 square miles, of 975 square kilometers) of the Montney geological formation, the most accessible northern BC and Alberta shale gas deposit and one of the richest.
The formation is a driver of current consensus forecasts, by the National Energy Board (NEB) as well as industry voices such as the Navigant consulting house, that over the next three decades BC production will grow nearly five-fold into a range of 16 Bcf/d or nearly two-thirds of Canadian output in the 2040s.
The Montney underlies 130,000 square kilometers (52,000 square miles) of northwestern Alberta and northeastern BC, mostly within a one-day drive on paved roads from the Alberta capital of Edmonton. Lying at varying depths, the thickness of the shale carpet is 100-300 meters (328-984 feet).
An assessment of economically recoverable resources by federal, Alberta and BC earth science agencies estimates that the Montney most likely contains 645 Tcf of gas, 21 billion bbl of liquid byproducts and 2.1 billion bbl. The appraisal adds that the figures are liable to increase as knowledge of the formation grows and efficiency improves in northern adaptations of shale horizontal drilling and hydraulic fracturing.
The Encana and Cutbank share in the BC gas and liquid byproducts mother lode is in the Dawson Creek region, where the Alaska Highway begins in an area well served with roads, pipelines and field contractors by northern Canadian standards.
The newborn Veresen Midstream partnership is a complementary northern processing addition to a services portfolio that includes interests in Alliance Pipeline between BC and Chicago, the Aux Sables liquids extraction plant in Illinois, and power stations in Ontario, Alberta, Saskatchewan, BC Prince Edward Island, Colorado, California and New York.
Veresen is also in line to play a role in Pacific coast LNG exports as sponsor of the Jordan Cove terminal project in Oregon. The firm holds regulatory approvals from U.S. and Canadian authorities to re-export gas imports from northern BC at a rate of 1.6 Bcf/d. Industry observers -- including Alberta Premier Jim Prentice, in a prediction made while he was on sabbatical from politics as vice-chairman of the Canadian Imperial Bank of Commerce until mid-2014 -- have identified Veresen as a potential winner of the Pacific coast LNG race to Asia because its project uses established gas trade routes instead of the new multibillion-dollar pipeline network sought by BC terminal proposals.