In a US$1.1 billion deal, Petronas has entered a JV alliance with Progress Energy Resources in the Montney shale gas play in British Columbia. Petronas will pay US$275 million up front and carry 75% of Progress' share of capital costs over the next five years up to a maximum of another US$827.3 million. Petronas will acquire a 50% working interest in 149,910 acres implying a per acre cost to Petronas of US$14,717. Progress will retain its interest in its remaining 750,000 net acres in British Columbia and Alberta.
As in all of these JV alliances Petronas not only gains entry but implicitly retains an option to extend the alliance to additional Progress acreage over time or even to acquire Progress outright.
This deal is significant in its own right as another example of NOC entry into the unconventional business. The resulting influx of capital greatly enhances the likelihood that development will progress. The significance is further enhanced because the Petronas/Progress JV is part of a continuing pattern of alliances in Western Canada that are focused not just on the upstream but also on market development for the proposed gas output. Other examples are the Apache/EOG Kitimat LNG project and the Kogas/EnCana JV announced last year which also focuses on LNG plus the Sasol/Talisman JV which is considering the possibility of a Gas to Liquids market approach. In this latest example Petronas and Progress will form an LNG export JV (80% owned by Petronas) to evaluate a possible LNG liquefaction plant on the west coast of British Columbia to ship LNG into the Pacific Basin market.