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Pembina, Paramount Agree to Processing, Capital Agreement in Montney Shale

Pembina Pipeline Corp. will acquire 250 MMcf/d of sour gas processing capacity and associated infrastructure in the Montney Shale region of Alberta from Paramount Resources Ltd., and the two companies also agreed to a 20-year midstream services agreement, in a cash and capital commitment deal valued at C$591 million (US$451.7 million).

In separate statements Thursday, the two Calgary-based companies said Pembina will acquire Paramount's newly-constructed Musreau Complex -- which includes a 200 MMcf/d deep cut train; a 50 MMcf/d shallow cut train; 22,500 b/d of condensate stabilization; an amine processing train; gathering lines; sales transportation pipelines and future disposal wells -- for approximately C$556 million (US$425 million). Pembina dubbed the acquisition as the Kakwa assets.

The agreement also calls for Pembina to acquire all of Paramount's preliminary engineering studies, licenses and surface rights for a new sour gas processing facility to be built at a site called 6-18. The Musreau Complex is located about 15 kilometers (9.3 miles) from Pembina's existing Cutbank Complex near Grand Prairie, AB, while the 6-18 site is approximately seven kilometers (4.3 miles) from Cutbank (see Shale DailyAug. 13, 2013).

According to Pembina, the Kakwa assets are already connected to Pembina's conventional pipelines for natural gas liquids (NGL) and condensate transportation services, as well as the Cutbank complex, via a pipeline operated by Paramount. Both companies said Pembina would construct a sour gas processing facility at the 6-18 site "upon Paramount's election or sufficient third-party demand," as reported by Pembina.

While Paramount said the agreement called on Pembina "to build and provide up to 200 MMc/fd of gas processing capacity" at the 6-18 site, Pembina said that in its opinion, the site "is capable of supporting up to 600 MMcf/d of additional sweet or sour gas processing capacity."

Under the agreement, Paramount will receive the C$556 million in cash at closing, plus an additional C$35 million (US$26.8 million) capital commitment for a debottlenecking initiative at the Musreau Complex, which is to be completed in 2016. By selling its auxilliary processing business, Paramount preserves its core production assets.  Both companies said the deal, which is subject to regulatory approvals and customary closing conditions, is expected to close in 2Q2016.

Pembina and Paramount also agreed to a 20-year midstream services agreement (MSA) to support the Kakwa assets, with the former retaining the right to contract any spare capacity to third parties. Paramount said it will have lower take-or-pay volume commitments in the initial years of the MSA, increasing to 200 MMcf/d by 2019. A charge of approximately C$3.00/boe (US$2.29/boe) is expected to be levied on sour gas delivered to the Musreau Complex.

"The acquisition of these assets strengthens Pembina's strategic positioning in one of our core areas, supported by some of the most economic resource plays in North America," said Jaret Sprott, Pembina's vice president for gas services. "The combination of Pembina's large-scale integrated value chain and Paramount's substantial Montney and Cretaceous land position, creates significant opportunities for future infrastructure development."

Upon the deal's closing, Pembina will have more than 1 Bcf/d of gas processing capacity, making it one of the largest third-party gas processors in Western Canada. Pembina's Cutbank Complex currently has 525 MMcf/d gross (468 MMcf/d net) of gas processing capacity. Expansions at Pembina's Musreau III and Resthaven complexes, which are both scheduled to come online by mid-2016, will raise the company's gas processing capacity to more than 1.7 Bcf/d.

According to Pembina's corporate presentation for March, the company's conventional pipelines division runs a network of more than 9,100 kilometers (5,654 miles) for crude oil and NGLs in Alberta, British Columbia, Saskatchewan and North Dakota. Meanwhile, Pembina's gas services division has 468 MMcf/d of shallow cut processing capacity, 799 MMcf/d of deep cut processing capacity, and more than 400 kilometers (248.5 miles) of gathering pipelines, all of which are in Alberta.

Pembina also has an oil sands and heavy oil division that includes 1,650 kilometers (1,025 miles) of pipeline with 880,000 b/d of contracted capacity, and a midstream division that includes a 73,000 b/d fractionator and 7.3 million bbl of finished product cavern storage at Redwater West in Alberta.

Meanwhile, Paramount's presentation from January shows the company's assets in Canada's Deep Basin include 500 gross sections of Cretaceous rights, 361 gross (313 net) sections of Montney Shale rights and 178 gross sections of Duvernay Shale rights. It also holds 64,452 gross (34,305 net) acres in the Duvernay and has 789 MMcf/d of gross (583 MMcf/d net) raw gas processing capacity in the Deep Basin. Subsidiary investments include 133 net sections in the Besa River Shale, part of the Liard Basin.

The Duvernay and Montney are both emerging oil and liquids-rich gas formations in Western Canada. To learn more on recent trends in both plays, check out NGI's brand new North American Shale & Resource Plays 2016 Factbook.

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