Apache Corp. and its partners are "in the throes of negotiations...for a tenant to underpin" the KM LNG project, which would transport liquefied natural gas (LNG) from a terminal near Kitimat, BC, to Asia Pacific markets, CEO G. Steven Farris said Thursday.

Farris disclosed the discussions during a conference call to discuss the company's latest quarterly earnings and operations.

KM LNG is majority owned by Apache Canada Ltd. (40%), which is partnering with Encana Corp. and EOG Resources Canada Ltd., each 30% stakeholders. KM secured a 20-year export terminal license from Canadian regulators last October and a final investment decision is expected this year (see Daily GPI, April 26; Oct. 17, 2011).

"We are pretty much done" with the front-end engineering and design (FEED) for the BC project, one of at least half a dozen prospective North American Pacific coast projects. "I can't tell you enough that the real bottom line for Kitimat or any of these projects [that] what's happening in the U.S. is an anomaly. [KM] is not a greenfield development."

As designed, KM would export LNG in two trains with up to 1.4 Bcf/d at full capacity. The project has been on the drawing board in different partnership configurations for about three years (see Daily GPI, March 21, 2011; May 19, 2010; Aug. 11, 2009; July 14, 2009).

Any BC LNG export projects that move forward "are going to have to be oil-based contracts," said Farris. "And we truthfully are in the throes of negotiations for...a tenant that could underpin that development. But we're not there until we're there. So we're continuing to negotiate."

A decision will be made "when we have all of the 'I's dotted and 'T's crossed, and the most important 'I' dotted and the 'T' crossed is to have an MOU [memorandum of understanding] that is good enough in order to -- on the sales side -- to take this project forward on an economic basis. And if that comes in the middle of the year, it will be middle of the year. If it comes in the third quarter, it will be in the third quarter."

The partners "also are continuing to declare right-of-way for the pipeline," said Farris of KM's Pacific Trails Pipelines LP (PTP). BC environmental regulators last month approved a request by PTP to expand the Kitimat to Summit Lake Looping Project, which Apache and its partners had requested to allow gas to be transported to the Pacific coast from BC's Horn River Basin (see Daily GPI, April 19).

"Of course, like anything, cost and price, are synonymous," said the Apache CEO. "But we haven't seen great increases on the cost side as we move through FEED."

Calgary-based Imperial Oil Ltd., which is 75% owned by ExxonMobil Corp., apparently is ready to jump into the LNG exporting business from the Western Canada province as well.

Imperial CEO Bruce March said Wednesday LNG exports might provide the best returns for the producer's Canadian gas reserves. However, LNG export developments are in the "very early days," he said during the annual meeting.

ExxonMobil is the biggest leaseholder in the Horn River Basin and the No. 1 gas producer in North America. Last month investor relations chief David Rosenthal said ExxonMobil was investigating many ways to boost demand for natural gas -- including LNG exports (see Daily GPI, April 27).

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