Malaysian national oil company Petronas plans to combine its liquefied natural gas (LNG) expertise with the unconventional resources abilities of Calgary-based Progress Energy Resources Corp. by acquiring Progress in a deal worth C$5.5 billion including debt. The combined enterprise would deliver Canadian natural gas to world markets.

“The proposed transaction will combine Petronas’ significant global expertise and leadership in developing LNG infrastructure with Progress’ extensive experience in unconventional resource development to build a strong and growing world-class energy business based in Canada,” said Datuk Anuar Ahmad, executive vice president of Petronas’ gas and power business.

“This development will generate substantial economic benefits for the provinces and local communities as Petronas’ access to capital will help to bring Canada’s abundant and clean-burning natural gas resources to global markets, leveraging our well-established and extensive network of customers worldwide.”

Petronas said it would retain all Progress employees “to capitalize on the experience and depth of the Progress team.” Progress is focused on exploration, development and production of large, unconventional natural gas resources in northeast BC and northwest Alberta. Progress holds the largest acreage position in the Montney Shale.

“Our asset base requires extensive capital to develop its large potential and ultimately access international LNG markets,” said Progress Energy CEO Michael Culbert. “Petronas offers the size and scale that will enable our company to continue to grow and not be limited by the same cash flow challenges faced by many producers in the North American natural gas market today.”

Just over a year ago Progress established a joint venture in the Montney Shale in the Foothills of northeast British Columbia (BC) with Petronas, with the latter acquiring a half interest in Progress’ Atares, Lily and Kahta properties. Development of LNG export capability was also being explored then (see Shale Daily, June 3, 2011).

“…[T]he joint venture has selected a site in Prince Rupert, BC, for our planned LNG export facility on the west coast of British Columbia,” Ahmad said. “A feasibility assessment agreement has been signed with the Prince Rupert Port Authority (PRPA), giving our project the exclusive right to conduct further feasibility and investigative studies on Lelu Island. We have begun engagement with relevant authorities and First Nations, as well as community groups, and we look forward to working closely with them in the course of our site investigation. A key consideration in our investigation will be understanding the environmental and social impacts as well as ascertaining technical feasibility.”

LNG export to global markets, particularly in Asia, is seen as a must in order for Canada to monetize its substantial gas reserves in British Columbia (see Shale Daily, May 7). Multiple projects have been proposed.

Encana Corp. is a one-third partner with Apache Corp. and EOG Resources Inc. in one of the proposed export facilities in Kitimat, BC. In May Shell Canada Ltd. and Japan’s Mitsubishi Corp., Korean Gas Corp. (Kogas) and PetroChina Co. Ltd. announced plans to develop a 12 million metric ton/year export facility near Kitimat, the largest proposal to date. And BC LNG Export Co-operative Ltd., also known as the Douglas Channel Energy Partnership, has federal approval, as well as a 20-year license to export from Canada’s National Energy Board to export up to 250 MMcf/d (1.8 million metric tons/year) from a floating merchant terminal near Kitimat.

In the international tie-up of Petronas and Progress, Petronas Canadian subsidiary Petronas Carigali Canada Ltd. will buy all of Progress’ outstanding common shares for C$20.45/share cash. Including the amount to be paid for Progress’ outstanding convertible debentures, the transaction is valued at C$5.5 billion. The transaction is to be completed by way of an arrangement under the Business Corporations Act (Alberta). The Progress board has approved the deal. The combined company’s Canadian upstream operations will remain based in Calgary with an LNG office in Vancouver, BC.

The price represents a premium of 77% over Progress’ closing share price on the Toronto Stock Exchange of C$11.55 on June 27 and 83% over Progress’ 30-trading day volume-weighted average trading price of C$11.18/share ending on June 27.

Progress Energy shares rocketed nearly 74% in heavy trading Thursday to close at $20.05, up $8.50 from their previous close. The stock traded as high as $20.18 Thursday, busting through a previous 52-week high of $15.55. Shares of other Canadian gas producers got a boost on Thursday from the deal, too, particularly Encana, which saw its shares climb nearly 6% to close at $20.37.

The proposed deal allows Progress to consider and accept a better offer and grants Petronas the right to match it. If Progress takes another offer or under certain other circumstances, Petronas would be entitled to a termination payment of C$150 million. Completion is subject to customary conditions, including receipt of court, shareholder and regulatory approvals, including under the Investment Canada Act and Competition Act. Progress shareholders will be asked to vote on the transaction and completion of the transaction will require the approval of two-thirds of the votes cast.

Petronas is engaged in the oil, gas and petrochemicals industries with assets and interests in more than 30 countries. It is one of the world’s leading LNG companies and is involved in every value chain of the LNG business, from liquefaction and shipping to re-gasification and trading. Apart from its Malaysian production facility, currently one of the world’s largest, Petronas also owns interests in LNG assets in Australia and Egypt.