Canadian Manufacturing

Chevron seeking new partner for B.C. LNG project

Looking for new partner for Kitimat LNG project after Apache Corp.announced it would "completely exit" partnership



CALGARY—Chevron Corp. said it needs a new partner for a West Coast liquefied natural gas (LNG) export project, but it will press ahead with early-stage development work on it in the meantime.

The revelation comes after Apache Corp. announced it would “completely exit” the 50-50 partnership, which includes natural gas resources in northeastern British Columbia, a pipeline to the West Coast and a facility near Kitimat, B.C., to chill the gas into a liquid state so it can be shipped overseas.

“We need to get our partnership resolved,” Chevron executive vice-president George Kirkland told a conference call to discuss the company’s latest financial results.

“That means Apache needs to move through the issues and we need to get a new partner in. That needs to happen.”

Kirkland was adamant that Chevron does not want to increase its stake beyond 50 per cent in the project, called Kitimat LNG.

Even before Apache’s announcement, the companies had been looking at bringing in other partners.

Apache’s move does not affect the timing of a final investment decision for Kitimat LNG, said Kirkland, who is also vice-chairman of Chevron’s board of directors.

Rather, the board’s official go-ahead will hinge on whether customers agree to sign long-term contracts covering 60 per cent of the plant’s planned production.

“That is the critical decision-maker on both timing and the investment decision,” he said.

Work is underway on assessing resource potential in northeastern B.C., getting clearance to build the Pacific Trail Pipeline and getting a better understanding of the project’s costs.

Kirkland said it’s important to keep moving the project ahead so that the company can “deal knowledgeably” with potential LNG customers.

Kitimat LNG has a permit from the National Energy Board (NEB) to export 10 million tonnes of LNG per year.

Apache said it’s getting out of the LNG business, with plans to also sell its stake in the Wheatstone project in Australia.

The Houston-based company has been under pressure from activist hedge fund Jana Partners LLC to restructure.

The exit from Kitimat LNG won’t detract from its value, Apache CEO and chairman Steven Farris said on a conference call.

“Frankly, whether we’re in it or not, it is a world class project with world class reserves and frankly Chevron and Apache at this point are way ahead of anybody else in that arena,” he said.

It was largely a matter of timing, as LNG terminals take years to build, he said.

“It makes sense for someone else to own it that has a different time horizon than we do,” Farris continued.

The Kitimat LNG project is furthest along of any of the proposed natural gas export facilities planned for Canada’s West Coast.

However, Chevron and Apache have not had an easy time securing buyers for the resource, said Ed Kallio, director of gas consulting at Ziff Energy, a division of Solomon Associates.

“Even though it’s a shovel-ready project, they’ve just had that weakness on the market end,” he said in an interview.

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