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Pieridae Energy to purchase Shell Canada assets

Published by , Editorial Assistant
World Pipelines,

Pieridae Energy Limited (‘Pieridae’ or the ‘Company’) has announced that it has signed a purchase and sale agreement (the ‘Purchase Agreement’) with Shell Canada Energy (‘Shell’) to purchase all of Shell’s midstream and upstream assets in the southern Alberta Foothills (the ‘Assets’) for a purchase price of CAN$190 million, subject to normal adjustments (the ‘Acquisition’).

The purchase price for the Acquisition will be satisfied via (i) the payment to Shell of CAN$175 million in cash (net of adjustments), to be raised by Pieridae through the issuance of term debt and equity, as further described below and (ii) the issuance of Pieridae common shares to Shell having an aggregate value of CAN$15 million (such value to be determined proximate to the time of closing of the Acquisition, in accordance with the terms of the Purchase Agreement). Closing of the Acquisition remains subject to satisfactory completion of due diligence by Pieridae on the Assets. Subject to such due diligence completion, the closing of the Acquisition is expected to occur in the third quarter of 2019, pending satisfaction of customary closing conditions and receipt of regulatory approvals.

“This Acquisition will be immediately accretive to the Company and also allows us to enhance the sustainability of our existing asset base,” said Pieridae’s Chief Executive Officer Alfred Sorensen.

“It also demonstrates solid progress for our flagship Goldboro LNG project. We said we would acquire additional gas supplies for the LNG facility and we have done that. Not only does this deal help us secure the remaining conventional natural gas supply needed for the first train of the Goldboro LNG project, it makes Pieridae a major player in the Alberta midstream and upstream industry.

“But more than that, it creates a solid, ongoing foundation for the Company as we continue to build toward becoming the first Canadian company to market LNG off the east coast to global consumers,” concluded Sorensen.

The conventional natural gas assets Pieridae controls are expected to allow the Company to access up to US$1.5 billion in credit support from the German government under the UFK programme to develop these upstream assets as part of the Goldboro LNG Project.

Description of assets being acquired

The Assets currently produce approximately 28 623 boe/d (based on Q1 2019 average) consisting of approximately 118.9 million ft3/d of natural gas, 5646 bpd of natural gas liquids (‘NGLs’) and 3161 bpd of condensate and light oil. Pieridae will also acquire three deep cut, sour gas processing plants (Jumping Pound, Caroline and Waterton) in the Acquisition, with a combined capacity of approximately 750 million ft3/d (currently operating with 420 million ft3/d of spare capacity), a 14% working interest in the Shantz sulfur forming plant, and approximately 1700 km of pipelines.

Net annual operating income (‘NOI’) of the Assets is approximately CAN$60 million (based on Q1, 2019 rolling 12-months adjusted NOI). Pieridae anticipates continuing to grow this revenue through finding efficiencies in the field and by expanding third party revenue.

“Pieridae would also like to acknowledge the Treaty 7 Nations as long-term, vital partners with respect to the Assets,” said Sorensen. “In the spirit of reconciliation and cooperation, Pieridae remains committed to respectful engagement and collaboration with Indigenous Peoples.”

The Acquisition builds on the milestones already achieved by Pieridae, including:

  • Acquiring substantial natural gas assets in the Alberta Foothills, allowing Pieridae to provide the gas supply needed for Goldboro’s first train;
  • Receiving all major regulatory, environmental, import/export and construction permits for the Goldboro LNG Project;
  • Signing a 20-year agreement with German utility giant Uniper for the full capacity of Goldboro’s first Train and half of the total project;
  • Confirming the German Government’s support of the project, declaring it eligible in principle for up to US$4.5 billion in loan guarantees, including US$1.5 billion for upstream development (the details of such loan guarantees have been previously disclosed by Pieridae);
  • Continuing to negotiate arrangements to use existing pipelines to transport the natural gas from Western Canada to the Goldboro facility’s front door;
  • Signing a benefits agreement with the Assembly of Nova Scotia Mi’kmaq Chiefs, allowing the Mi’kmaq to benefit economically from the development, construction and operation of Goldboro; and
  • Reaching a project labour agreement with major Nova Scotia trade unions to ensure fair employment opportunities in that province during Goldboro’s construction.

Pieridae continues to work with global engineering firm Kellogg Brown & Root Limited (KBR) to review an amended version of the previously prepared front-end engineering and design (FEED) study for the project, and to conduct an open-book estimate necessary to finalise a lump-sum, turnkey engineering, procurement and construction contract with KBR.

Acquisition highlights and rationale

The Assets to be acquired align well with Pieridae’s existing Central Alberta properties, providing further consolidation of the productive Alberta and British Columbia conventional foothills natural gas pools. It is expected that synergies will be realised in the northern part of the acquired Assets area, where consolidation of working interests in production and midstream assets complement Pieridae’s existing core areas. The Assets consist of long life, low decline production, in the range of 10%, with very high liquids and sulfur yields.

The acquired Assets are well suited to the technical skill set that currently exists within the workforce of Pieridae. Existing production and new drilling inventory will provide significant new gas supply along with an extensive, well maintained, underutilised and sophisticated gas midstream system. The associated liquids will provide accretive NOI and the associated gas will provide a large contribution to the 800 million ft3/d of conventional gas supply that is required for train 1 of the Goldboro LNG facility. The three large gas processing plants included in the Acquisition feed into the TC Energy Pipeline System and are located south of the normally congested James River transport corridor. This is anticipated to result in lower transportation tolls to AECO and fewer outages.

“Pieridae is excited to retain the well-trained staff that have been exceptionally diligent at maintaining the Assets for decades,” said Pieridae’s Chief Operating Officer Tim de Freitas. “This dedicated workforce is expected to continue to provide operational oversight of the acquired properties and will form a vital part of the long term Goldboro project. Our highly regarded foothills professionals will complement this workforce and together will form a highly effective team that will develop these structurally complex, conventional reservoirs.”

The Assets’ Proved Developed Producing (‘PDP’) reserves on an MBOE basis make up 70% of total reserve bookings, while undeveloped reserves are only 6% of the total reserve base (based on independent third-party engineering reports, described further below).

Third party revenue received from production associated with the Assets is expected to be between CAN$20 and CAN$25 million a year, and Pieridae anticipates further growth in this part of the business due to the exceptional gas and liquids processing capabilities at the acquired plants. Shell will retain responsibility for known environmental remediation relating to the midstream assets.

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