Calgary's Penn West Energy Trust said Tuesday it will partner in a 50-50 joint venture (JV) with a subsidiary of Mitsubishi Corp. (MC) to develop natural gas properties in northeastern British Columbia (BC).
The partnership plans to develop Penn West's shale gas assets in the Cordova Embayment area and some conventional gas assets in the Wildboy area. Penn West is to serve as operator. MC has committed about C$850 million to the JV.
Penn West operates throughout the Western Canadian Sedimentary Basin on a land base encompassing around six million acres. MC is Japan's largest general trading company, or sogo shosha, with more than 200 bases of operations in almost 80 countries worldwide.
For the past four years Penn West said it has accumulated a significant shale gas position in the Cordova Embayment. Initial drilling results in the area "have been promising and we have expanded the size of our land base. It is Penn West's view that the JV will accelerate the exploration and development of this significant unconventional gas asset."
The JV, said Penn West, "supports our corporate strategy, which recognizes the importance of maintaining a balanced exploration and development portfolio as we assess and develop the full potential of our diverse resource plays."
Under the terms of the JV, Penn West will sell MC a half stake of its working interest in its Wildboy conventional gas assets, which includes current production of about 30 MMcf/d of gas, 550,000 gross acres of land including 120,000 acres targeting shale gas in the Cordova Embayment, the Wildboy gas processing facility, a sales gas pipeline connecting the area to the TransCanada Corp. gathering system in Alberta, and associated infrastructure.
After the agreement takes effect, Cordova Gas Resources Ltd., a subsidiary established by MC in Calgary, will acquire the 50% stake in the gas properties.
"PWE [Penn West] is a promising partner with a significant position in the Cordova Embayment, which boasts a high-quality shale gas resource comparable to the top-tier shale gas resources in North America," MC said. "PWE has been conducting initial drilling operations since 2006 and based upon third party evaluations, Mitsubishi believes that the shale gas resources in this project are approximately 5-8 Tcf." MC also estimated that the resources contain 100-160 million tons in liquefied natural gas (LNG) equivalents.
"The potential of this enormous resource could greatly exceed Japan's natural gas annual demand," MC said.
Current plans of the JV, said MC, "are to lift current output of approximately 30 MMcf/d to approximately 500 MMcf/d (approximately 3.5 million tons of LNG equivalents/year) based upon current and anticipated economic, regulatory and market conditions."
MC said it would market its equity share of production in the North American market, partly through CIMA Energy Ltd., a U.S.-based gas marketing company in which MC holds a 34% equity interest.
"Leveraging today's investment, MC intends to build up its knowledge and expertise in the shale gas business with the aim of acquiring more assets in North America," it said. "As part of its resource and energy strategy going forward, MC also aims to secure a stable supply of energy resources by diversifying its asset holdings, including through the acquisition and development of unconventional natural gas sources such as shale gas."
At closing MC is to pay Penn West C$250 million for the existing assets and additionally will fund C$600 million of the first C$800 million of exploration and development capital expenditures in the JV.
The transaction is expected to close by Sept. 23, subject to MC's final board approval and customary conditions.
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