Aussie energy company eyeing Apache stake in Kitimat: media reports

The Australian Business Review is reporting that Woodside Petroleum, a cash rich Australian energy company, has its eye on Apache’s 50 per cent stake in the Kitimat LNG project. As part of any deal, Woodside would probably also have to buy Apache’s stake in the Australian Wheatstone LNG project, which is also up for sale.

The months-long process by Apache to find a new home for its West Australian domestic gas business and its stake in the under-construction Wheatstone LNG project — as well as its stake in the Kitimat LNG project in Canada — has drawn plenty of interest from parties in that neck of the woods.

The cashed-up, project-hungry Woodside Petroleum has been interested from the outset in the Kitimat stake, but is also said to be prepared to make an offer on Wheatstone if Apache is determined to sell the assets together


WoodsideEarlier,  another Australian newspaper, The Age reported that Woodside’s petroleum and LNG operations had “revenue of $US5.3 billion for the first nine months of 2014. Compared with the corresponding period in 2013, revenue was 28.7 per cent higher for the 2014 period.”Part of the money came from selling natural gas assets in the United States.

According to The Age:

Woodside’s LNG production rose to a record 5.1 million tonnes for the first nine months of Woodside’s fiscal 2014. The record production represents a rise of 17.6 per cent on the same period for 2013. Behind the result was the operational performance of the Pluto LNG facility (Woodside’s interest is 90 per cent). Pluto lifted LNG production by 24.3 per cent on the corresponding period in 2013, to 3.1 million tonnes. Pluto also produced 2.2 million barrels of condensate for the first nine months of 2014. Oil production rose by a mammoth 33.3 per cent on the same period in 2013, to 8.8 million barrels.

On November 6, according to the Sydney Morning Herald, Woodside’s CEO Peter Coleman warned that the Asian customers for LNG who are holding out for cheaper prices could face a  “supply crunch” and “By holding out for a cheaper price, customers are potentially exacerbating project FID [final investment decision] delays and may unwittingly help bring on a supply crunch.”

He called on suppliers and customers to work together to  ensure supply projects went ahead.

The Woodside website describes the company as  “Australia’s largest independent dedicated oil and gas company and one of the world’s leading producers of liquefied natural gas.​​​​​​”

It goes on to say

As we aspire to become a global leader in upstream oil and gas, we are guided by the Woodside Compass. The Compass links Woodside’s core values – respect, integrity, working sustainably, working together, discipline and excellence – with our vision, mission and strategic direction.

Woodside has an extensive portfolio of facilities which we operate on behalf of some of the world’s major oil and gas companies.
We have been operating the landmark Australian project, the North West Shelf, since 1984 and it remains one of the world’s premier liquefied natural gas (LNG) facilities.

With the successful start-up of the Pluto LNG Plant in 2012, Woodside now operates six of the seven LNG processing trains in Australia.

Phil Germuth, Enbridge’s “What the….” moment and what it means for British Columbia

Phil Germuth
Councillor Phil Germuth questions Northern Gateway officials about their plans for leak detection, Feb. 17, 2014 (Robin Rowland/Northwest Coast Energy News)

Enbridge Northern Gateway officials are loath (to put it mildly) to speak to the media but sometimes they let things slip. Earlier this summer, at a social event, I heard an Enbridge official (probably inadvertently) reveal that when the company’s engineers came before District of Kitimat Council earlier this year they were surprised and somewhat unprepared to fully answer the detailed technical questions from Councillor Phil Germuth on pipeline leak detection.

In January, 2015, Phil Germuth will take the centre chair as mayor at the Kitimat Council Chambers.

The results of the municipal election in Kitimat, and elsewhere across BC show one clear message; voters do want industrial development in their communities, but not at any price. Communities are no longer prepared to be drive by casualties for giant corporations on their road to shareholder value.

The federal Conservatives and the BC provincial Liberals have, up until now, successfully used the “all or nothing thinking” argument. That argument is: You either accept everything a project proponent wants, whether in the mining or energy sectors,  or you are against all development. Psychologists will tell you that “all or nothing thinking” only leads to personal defeat and depression. In politics, especially in an age of attack ads and polarization, the all or nothing thinking strategy often works. Saturday’s results, however, show that at least at the municipal level,  the all or nothing argument is a political loser. Where “all politics is local” the majority of people are aware of the details of the issues and reject black and white thinking.

Ray Philpenko
Northern Gateway’s Ray Philpenko gives a presentation on pipeline leak detection to Kitimat Council, Feb. 17. 2014. (Robin Rowland/Northwest Coast Energy News)

The Enbridge official went on to say that for their company observers, Germuth’s questions were a “what the…..” moment.  As in “what the …..” is this small town councillor doing challenging our expertise?

But then Enbridge (and the other pipeline companies) have always tended to under estimate the intelligence of people who live along the route of proposed projects whether in British Columbia or elsewhere in North America, preferring to either ignore or demonize opponents and to lump skeptics into the opponent camp. The Northern Gateway Joint Review Panel also lost credibility when it accepted most of Northern Gateway’s arguments at face value while saying “what the ……” do these amateurs living along the pipeline route know?

Pro Development

“I am pro-development,” Germuth proclaimed to reporters in Kitimat on Saturday night after his landslide victory in his campaign for mayor.

On the issue of leak detection, over a period of two years, Germuth did his homework, checked his facts and looked for the best technology on leak detection for pipelines. That’s a crucial issue here where pipelines cross hundreds of kilometres of wilderness and there just aren’t the people around to notice something is amiss (as the people of Marshall, Michigan wondered at the time of the Line 6B breach back in 2010). Enbridge should have been prepared; Germuth first raised public questions about leak detection at a public forum in August 2012. In February 2014, after another eighteen months of research, he was ready to cross-examine, as much as possible under council rules of procedure. Enbridge fumbled the answers.

So that’s the kind of politician that will be mayor of Kitimat for the next four years, technically astute, pro-development but skeptical of corporate promises and determined to protect the environment.

Across the province, despite obstacles to opposition set up by the federal and provincial governments, proponents are now in for a tougher time (something that some companies will actually welcome since it raises the standards for development).

We see similar results in key votes in British Columbia. In Vancouver, Gregor Roberston, despite some problems with policies in some neighborhoods, won re-election on his green and anti-tankers platform. In Burnaby, Derek Corrigan handily won re-election and has already repeated his determination to stop the twinning of the Kinder Morgan pipeline through his town. In Prince Rupert, Lee Brain defeated incumbent Jack Musselman. Brain, who has on the ground experience working at an oil refinery in India, supports LNG development but has also been vocal in his opposition to Northern Gateway.

The new mayor in Terrace Carol Leclerc is an unknown factor, a former candidate for the BC Liberal party, who campaigned mainly on local issues. In the Terrace debate she refused to be pinned down on whether or not she supported Northern Gateway, saying,  “Do I see Enbridge going ahead? Not a hope,” but later adding, “I’d go with a pipeline before I’d go with a rail car.”

 

election signs
Kitimat election signs. (Robin Rowland/Northwest Coast Energy News)

Plebiscite confirmed

Kitimat’s mayor and council elections also confirm that Northern Gateway plebiscite vote last April. Kitimat wants industrial development but not at the price of the community and the environment. The unofficial pro-development slate lost. A last minute attempt to smear Germuth on social media was quickly shot down by people from all sides of the Kitimat debate. Smears don’t usually work in small towns where everyone knows everyone.

Larry Walker, an environmentalist with a track record in municipal politics as an alderman in Spruce Grove, Alberta, won a seat. Together with Rob Goffinet and Germuth, that is three solid votes for the environment. The other new councillor is Claire Rattee who will be one to watch. Will the rookie be the swing vote as Corinne Scott was?

Mario Feldhoff who came to third to Goffinet in the overall vote (Edwin Empinado was second) is a solid councillor with a strong reputation for doing his homework and attention to detail and the unofficial leader of the side more inclined to support development. Feldhoff got votes from all sides in the community.

During the debates, Feldhoff repeated his position that he supports David Black’s Kitimat Clean refinery. But as an accountant, Feldhoff will have to realize that Black’s plan, which many commentators say was economically doubtful with oil at $110 a barrel, is impractical with oil at $78 a barrel for Brent Crude and expected to fall farther. Any idea of a refinery bringing jobs to Kitimat will have to be put on hold for now.

LNG projects are also dependent on the volatility and uncertainty in the marketplace. The companies involved keep postponing the all important Final Investment Decisions.

There are also Kitimat specific issues to deal with. What happens to the airshed, now and in the future? Access to the ocean remains a big issue. RTA’s gift of land on Minette Bay is a step in the right direction, but while estuary land is great for camping, canoeing and nature lovers, it is not a beach. There is still the need for a well-managed marina and boat launch that will be open and available to everyone in the valley.

Germuth will have to unite a sometimes contentious council to ensure Kitimat’s future prosperity without giving up the skepticism necessary when corporations sit on a table facing council on a Monday night, trying to sell their latest projects. That all means that Germuth has his job cut out for him over the next four years.

Apache still looking for buyer for Kitimat LNG stake

Apache Corp is still looking for a buyer for its stake in the Kitimat LNG project,  company CEO Steven Farris told investors Thursday as the company reported its third quarter results. Farris gave no details, just telling an investor conference call, that as he reported during the second quarter call, that company intends to “completely exit” both the Kitimat LNG project and the Wheatstone LNG project in Australia.Apache Corporation

 

All Farris would say is, “We have lots of people working on the projects to do just that.”

At that same time, Apache is still spending money on the Kitimat project. The quarterly report says that Apache spent $151 million on the project in the third quarter, and a total of $498 million so far this year. That includes an equity investment in the Pacific Trail Pipelines $15 million in the third quarter and $44 million so far this year.

Chevron, Apache’s partner continues to work on the Kitimat project.

Chevron sells 30% of Canadian Duvernay shale gas assets to Kuwait

Chevron LogoChevron Corporation says its wholly-owned subsidiary, Chevron Canada Limited, has reached agreement to sell a 30 per cent interest in its Duvernay shale gas  play to Kuwait Foreign Petroleum Exploration Company’s wholly-owned subsidiary, KUFPEC Canada Inc., for $1.5 billion.

The total purchase price includes cash paid at closing as well as a carry of a portion of Chevron Canada’s share of the joint venture’s future capital costs. The Duvernay is located in west-central Alberta, and is believed to be among the most promising shale opportunities in North America.

The agreement creates a partnership for appraisal and development of liquids-rich shale resources in approximately 330,000 net acres in the Kaybob area of the Duvernay.

“This sale demonstrates our focus on strategically managing our portfolio to maximize the value of our global upstream businesses and is consistent with our partnership strategy,” said Jay Johnson, senior vice president, Upstream, Chevron Corporation. “The transaction provides us an expanded relationship with a valued partner. It also recognizes the outstanding asset base we have assembled.”

Following the closing of the transaction, Chevron Canada will hold a 70 percent interest in the joint venture Duvernay acreage and will remain the operator. The transaction is expected to close in November 2014.

“We remain encouraged by the early results of our exploration program and view the Kaybob Duvernay as an exciting growth opportunity for the company,” said Jeff Shellebarger, president of Chevron North America Exploration and Production Company.

Chevron Canada has drilled 16 wells since beginning its exploration program, with initial well production rates of up to 7.5 million cubic feet of natural gas and 1,300 barrels of condensate per day. A pad drilling program recently commenced which is intended to further evaluate and optimize reservoir performance as well as reduce execution costs and cycle time.

Chevron is developing the liquified natural gas facility at Bish Cove, south of Kitimat.  Chevron’s partner in the venture, Apache, is looking to sell its stake in Kitimat LNG after a hedge fund with significant Apache stock holdings decided to change the company’s focus to U.S. operations.

 

Controlling land and pipelines key to Haisla LNG future NEB filing says

The Haisla Nation’s plan for entering the LNG business is based on the idea that “it is anticipated that the Haisla Projects will be developed using a business model based on controlling two components of the value chain: land and pipeline capacity” according to its application to the National Energy Board for a natural gas export licence.

Cedar LNG Development Ltd., owned by the Haisla Nation, filed three requests for export licences with the NEB on August 28, under the names Cedar 1 LNG, Cedar 2 LNG and Cedar 3 LNG.  Another name used in the application is the “Haisla Projects.”

The 25-year export licence request is standard in the LNG business; it allows export of natural gas in excess of projected North American requirements. Thus like the NEB hearings for the Kitimat LNG and LNG Canada projects it is not what is called a “facility” licence which is what Enbridge Northern Gateway requested.

The project anticipates six “jetties” that would load LNG into either barges or ships at three points along Douglas Channel, one where the present and financially troubled BC LNG/Douglas Channel Partners project would be.

A second would be beside the BC LNG project, which may refer to the Triton project proposed by  Pacific Northern Gas parent company Altagas.

Both are on land now owned by the Haisla Nation in “fee simple” land ownership under Canadian law.

Map of Haisla LNG sites
Map from the Haisla application to the NEB showing that the Haisla Projects Region will allow for a total of six LNG jetty sites. One of these, on DL99, is currently ear-marked to be used for a project involving a consortium (BCLNG) One will be situated on the DL309 Haisla fee simple land and the other four jetties are to be  situated on the Haisla leased lands that surround the Chevron-led LNG development at Bish Cove. The map also shows that the Haisla own land at Minette Bay.

The other four would be on land surrounding the current Chevron-led Kitimat LNG project along Douglas Channel and in the mountains overlooking Bish Cove which the Haisla have leased.

Ellis Ross
Haisla Nation Chief Counsellor Ellis Ross at Bish Cove, June 19, 2013. (Robin Rowland/Northwest Coast Energy News)

The move last week and the revelation of the Haisla’s plans for the land are a cumulation of Haisla Nation Chief Counsellor Ellis Ross’s idea of restoring more of the First Nation’s traditional territory by buying or leasing the land using standard Canadian land law and at the same time getting around some of the more restrictive provisions of the Indian Act that apply to reserve land.

Just how the Haisla will go into the pipeline business is not as clear as the First Nation’s acquisition of the land. The application says:

The pipeline capacity required to transport sourced LNG to the Haisla Projects will include a mix of new and existing pipeline and infrastructure. The Haisla are in the advanced stages of negotiating and drafting definitive agreements with the major gas producers and pipeline transmission companies located in the vicinity with respect to securing pipeline capacity. It is expected that the Haisla Projects will rely on the Haisla’s business partners or customers to source gas from their own reserves and the market.

With the Haisla basing their business strategy on land and pipelines, the First Nation’s strategy is looking for  flexibility in what is a volatile and uncertain market for LNG.

The application says the Haisla “are currently in advanced stage discussions and negotiations with a number of investors, gas producers, LNG purchasers, pipeline transmission companies, technology providers and shippers. As such, the particular business models have yet to be finalized. However, it is anticipated that between the various Haisla Projects, multiple export arrangements may be utilized.”

As part of the idea of flexibility, the actual LNG infrastructure will be constructed and operated with potential partners. That is why there are three separate applications so that each “application will represent a separate project with independent commercial dealings with investors, gas producers, LNG purchasers, pipeline transmission companies, technology providers and shippers.”

The Haisla say that they are “working with a number of entities to develop business structures and partnerships to provide transaction flexibility, adequate financing, modern technology, local knowledge, and marketing expertise specific to Asian targets. The separate projects will accommodate expected production and demand and will also allow for a number of midlevel organizations to be involved with the various projects as well as traditional major gas producers and LNG purchasers.”

The Haisla are working with the Norwegian Golar LNG which had been involved in the stalled BC LNG project, using a Golar LNG’s vessels and technology, using a new design that is now being built in Singapore by Keppel Shipyard.

Golar LNG uses PRICO LNG  process technology developed by Black & Veatch,  (Wikipedia entry) “which is reliable, flexible and offers simplified operation and reduced equipment count.”

The filing says the project will “be developed using either barge-based or converted Moss-style FLNG vessels. The terminals will consist of vessel-based liquefaction and processing facilities, vessel-based storage tanks, and facilities to support ship berthing and cargo loading”

The jetties to be used for the Haisla Projects may be either individual FLNG vessels or “double stacked”, meaning that the FLNG vessels are moored side-by-side at a single jetty. The Haisla have conducted various jetty design work and site /evaluation studies with Moffat and Nichol.

The Haisla Projects anticipate that the construction will be in 2017 to 2020, “subject to receiving all necessary permits and approvals” and is expected to continue for a term of up to twenty five years. There is one warning, “The timelines of the Haisla Projects will also depend on the contracts and relationships between the Applicant and its partners.”

The filing goes on to say:

Haisla Nation Council and its Economic Development Committee are committed to furthering economic development for the Haisla. The Haisla’s business philosophy is to advance commercially successful initiatives and to promote environmentally responsible and sustainable development, while minimizing impacts on land and water resources, partnering with First Nations and non-First Nations persons, working with joint venture business partners, and promoting and facilitating long-term development opportunities.

The Haisla Applications will allow the Haisla to be directly involved as participants in Canada’s LNG industry, rather than having only royalty or indirect interests. The Kitimat LNG and LNG Canada projects, and the associated Pacific Trails Pipeline and Coastal Gas Link Pipeline, have increased economic opportunities in the region and the Haisla are very supportive of these projects locating within the traditional territory of the Haisla. The support of the Haisla for these two projects reflects a critical evolution of the Haisla’s economic and social objectives.

You can see the filing on the NEB projects page at http://www.neb-one.gc.ca/clf-nsi/rthnb/pplctnsbfrthnb/lngxprtlcncpplctns/lngxprtlcncpplctns-eng.html

Map from the Haisla Nation application to the NEB showing the proposed LNG developments in relation  to Douglas Channel.
Map from the Haisla Nation application to the NEB showing the proposed LNG developments in relation to Douglas Channel.
Bitumen map
Map from the Enbridge filing with the Joint Review Panel showing the same area with the proposed Northern Gateway bitumen terminal.

 

 

Chevron applies to update permit to discharge storm water to Bish Cove and Douglas Channel

Chevron LogoChevron has applied to the BC Ministry of the Environment for a permit to discharge storm water from the liquified natural gas construction site at Bish Cove and along the shore of Douglas Channel.

The construction site is currently operating on a Waste Water Discharge Approval that expires on Oct. 31.

Map of Bish Cove
Map showing construction areas at the Kitimat LNG site at Bish Cove likely to discharge storm water into the Douglas Channel. (Chevron/ McElhanney Consulting)

 

The application sets new objectives that “will be protective of the receiving environment.” Various construction areas will discharge storm water (likely due to clearing of the bush cover) from areas at Bish Cove itself and the Bish Creek watershed “including the following watercourses and associated tributaries: Bish Creek, West Creek, Skoda Creek and Renegade Creek.”

The application says that the “maximum rate of effluent discharged from this project and support areas will vary based upon seasons and weather.” Areas and amounts of water may change as the construction proceeds. “The characteristics of the stormwater runoff will be water produced from precipitation, including snowmelt that contains suspended sediment from earthworks and construction.” The application adds, “The types of treatment to be applied to the discharges are: erosion prevention and sedimentation control management practices and devices which may include sedimentation ponds, oil water separators, pH adjustment, flocculent  addition and sand filtration.

The public and concerned individuals or groups can provide “relevant information” to the Regional Manager, Environmental Protection, #325-1011 Fourth Ave, Prince George BC V2L 3H9 until September 20, 2014 or call Marc Douglas at 844-800-0900.

Chevron sticks with Kitimat but no final investment decision until customers sign

Chevron is sticking with the Kitimat LNG project but won’t make a Final Investment Decision until it has signed sales and purchase agreements for between 60 and 70 per cent of the natural gas, Chevron’s vice-chairman and executive vice-president of upstream operations, George Kirkland told investment analysts in a conference call Friday.

Kirkland said that decision will happen “irrespective of what happens with Apache,” which has decided to completely exit the project.

Chevron Logo“We need to get partnership resolved and Apache has to move through the issues s and we need to get a new partner in. That needs to happen. That’s quite obvious,” Kirkland added.

Other factors, Kirkland told the call, are final test results from the Liard and Horn River natural gas play in northeast British Columbia and finalization of the “pipeline corridor.”

Kitimat-Liard-Horn package

Although the residents of Kitimat are focused on the LNG terminal at Bish Cove, remarks both by Kirkland today and by Apache CEO Steve Farris Thursday, it appears that energy industry views Kitimat LNG as part of a “package” (a term used by both) that includes the Liard and Horn River gas fields and the connecting Pacific Trails Pipeline.

Kirkland also said Chevron has no interest in any further investment beyond the 50 per cent it already holds. “We have 50 per cent of the interest in Kitimat-Liard-Horn River assets. That’s right in the middle of the sweet spot where we like to be where we’re committing people to run the projects and operations. We don’t want more than 50 per cent but we do have available some small amount of working interest that we would provide to a LNG buyer.

“There’s always been a plan for us and Apache to have some working interest that could be sold down to buyers, so they would be part of the development and they would be in the value chain. That has not changed.”

Kitimat LNG’s rival project LNG Canada, run by Shell, has buyer partners in KoGas, Mitsubishi and PetroChina.

Bish Cove
Kitimat LNG under construction at Bish Cove, September 2013. (Robin Rowland/Northwest Coast Energy News)

Final Investment Decision

One analyst asked Kirkland if the Final Investment Decision would come at the end of 2014, as previously announced, or in 2015. Instead, Kirkland said, “We will reach FID shortly after having 60 to 70 per cent gas committed to an SPA- a sales and purchase agreement. That is the critical decision maker and for both timing and the investment decision, irrespective of what happens with Apache. We’re driven, once again, by having a sales contract or sales contracts that gives us 60 to 70 per cent of the gas committed at an economic price.”

On the Kitimat terminal, Kirkland said, “We’ve got work going on, FEED [Front End Engineering and Design] work on the plant itself.

“We have to understand cost and schedule on that plant… We’re not spending huge money but it is a lot of money in terms of  hundreds  of millions of dollars.  Now that is critical for us to have all that so we can deal knowledgeably with buyers. We have to understand cost. We have to understand resource,  so we can deal with the particulars of pricing.

“We are not going to do a project unless it’s economic. We’ve always told you we’re not going to build that project unless we have 60 per cent of the gas sold. If you understand the project it makes sense.”

“I am not concerned if Apache leaves,” Kirkland said. “I think we could easily step in and be the operator of the upstream. I am confident there. Apache has been very good to work with in the early stages of the assessment of Liard.

“I think we’re in good shape but we need clarity, we need to get closure on the partnership and as I mentioned we have to do the work where we deal with buyers and understand costs and understand economics. We are very value driven, we are not going to go FID until we understand the economics of that sale.”

Confident on assets

Kirkland said that the company is confident about the assets in the Liard and Horn River regions but is waiting for final results from some test wells in the Liard.
“We can check off our confidence level on the Horn River. Resources are already high. We’ve already done that appraisal. So the focus on the resource sector is on the Liard,  with some appraisal there and getting some production work. The wells where we need to get some production data  will be complete by the end of the year. So that’s a really important step forward.”

Kirkland also hinted at the potential problems with the Pacific Trails Pipeline, where there is still a dispute with the Wet’suwet’en First Nation. “We’re going to focus on the pipeline and the end of the pipeline corridor. That’s important and we’re putting some money into that to finalize the pipeline routing, get all our clearances and then we’ve got work going on.”

Chevron slide
Slide from the Chevron second quarter results presentation showing other LNG projects (Chevron)

Overall Kirkland was enthusiastic about other liquified natural gas projects in Australia and elsewhere in the world. Chevron Corporation reported earnings of $5.7 billion for the second quarter 2014, compared with $5.4 billion in the 2013 second quarter. Sales and other operating revenues in the second quarter 2014 were $56 billion, compared to $55 billion in the year-ago period.

Company CEO John Watson said a news release, “In Australia, our Gorgon and Wheatstone LNG projects continue to reach important interim milestones. Gorgon remains on track for expected start-up in mid-2015. We are also advancing the development of our liquids-rich, unconventional properties in the United States, Canada and Argentina.”

Apache to “completely exit” from Kitimat LNG as company refocuses

Apache will “completely exit” the Kitimat LNG project, company CEO Steven Farris told investors Thursday as the company reported its second quarter results.

The pull out from Kitimat is part of a plan by Apache to spin off assets that are not part of its “base business” so it can concentrate on its “North American onshore assets.”

“We have said for some time that Canada is part of our North American onshore portfolio,” Farris told analysts in a conference call.

“Certainly we have two businesses up there. [in Canada]  We have a business which is a base business with respect to the Duverney Shale and Monteny shale and some of the other things we working on there. We also have the Kitimat-Horn River- Liard. Kitimat -Horn River -Liard is part of our LNG project which we reindicated today that we intend to exit.”

Bish Cove Kitiamt
A long view of the Kitimat LNG project at Bish Cove, Sept. 14, 2013. (Robin Rowland/Northwest Coast Energy News)

The Horn River and Liard natural gas fields would have served the LNG project. The divesture could either be as a complete package or sold separately perhaps through the capital markets.  The Duverney Shale and Monteny shale plays are considered North American assets, while the Horn RIver Liard plays are considered international because the product from there would be sold in Asia via an LNG terminal.

Chevron, the 50 per cent partner with Apache in Kitimat LNG, said it would have no comment on the Apache move until its own investor conference call Friday morning.

Apache also intends to divest its stake in the Australian Wheatstone LNG project, where Chevron is also a partner.

It was about 18 months ago,  Farris said, that Apache changed its focus to “enhancing its North American onshore resource base… We’ve also made it clear that there are no sacred cows as our efforts continue.”

Change in company strategy

Steven Farris
Apache CEO Steven Farris. (Apache)

Farris and other executives repeatedly emphasized on the call that the Kitimat and Wheatstone sales were part of an overall change in company strategy.

“I have to honestly say that the complete exit by Apache will not have an impact on Kitimat going forward one way or another,” Farris said.

“Whether we’re in it or not, they will contact with world class reserves and frankly Chevron and Apache are way a head of anybody else in that arena. We’ve always been in a position that we felt we could not be in these LNG projects. I think it’s important that we state that.”

Apache has been under pressure from a giant New York based hedge fund called Jana to get out of the international market and concentrate on proven North American markets.

Some other financial analysts on the call seemed a little skeptical about the move, with a couple of questions focused on whether Apache was giving up long term investments.

“In terms of business and priority of capital and time frame of LNG specifically Kitimat it make sense for someone to own it who has a different timeline,”  Farris said.

As for the timing of the sale, both Farris and Chief Financial Officer, Alfonso Leon, would not give specifics. “We haven’t decided on a specific timeline, we are working on a number of different opportunities,” Leon said. “Each of them has a different timeline associated with it. So we will make decisions as we reach decision points. Specificaly on the separation work flow…it is not something that will be executed on an imminent basis. Work has been underway but there is still significant work ahead of us.”

The executives would not say how much Apache has spent on Kitimat LNG so far, but it has been estimated at $2 billion just this year.Upgrading the old forest service road to a modern highway capable of supporting heavy truck traffic was estimated to cost $25 million Kitimat LNG officials said late last year.

Fair price Apache Corporation

As for the selling price, Farris said that company will hold out for the best deal, saying that Apache has got a “fair price” for international assets that is has already sold, adding that when it comes to Kitimat and Wheatstone. “We won’t sell at prices that don’t make sense,” whether that comes from a package deal with the northeast BC shale assets or through the capital markets.

Overall, Apache Corporation is making money, announcing second-quarter 2014 earnings of $505 million Net cash provided by operating activities totaled approximately $2.3 billion in second-quarter 2014, compared with $2.8 billion in the prior year, with cash from operations before changes in operating assets and liabilities totaling $2.2 billion, compared with $2.6 billion in second-quarter 2013.

In the quarterly report news release, Farris said, “Record-setting performance by our Permian Region continues to drive strong results for the company… Apache’s onshore North American liquids production increased 18 percent on a pro forma basis in the second-quarter 2014 compared with the same period a year ago”

Although some enviromental groups and First Nations are claiming victory in the Apache divestiture, it is clear that those activities had negiligble impact on the decision, which was driven in part by the demands of a New York hedge fund and by the growing uncertainty in the LNG market as Asian countries seek natural gas at much lower North American prices. As the old Godfather movies often said, “It’s not personal, it’s business.”

Apache’s exit, however, does increase the uncertainty in both the short term and long term development of LNG export terminals in northwestern BC, and clearly shows that Premier Christy Clark made a mistake in promising that the provincial economy will boom thanks to LNG.

Both Premier Clark and LNG Minister Rich Coleman were unavailable to the media Thursday. Coleman’s office did send an e-mail tothe media saying, “With 16 LNG proposals involving over 30 partners, we recognize partnerships will change over time, as companies make decisions that make commercial sense for their business. It’s the nature of the business and the energy sector.”

Shell reports

Little noticed in the media attention over Apache, was the fact Royal Dutch Shell also issued its quarterly report early Thursday. Unlike Apache, Shell is still investing in LNG projects around the world, and getting returns from existing LNG projects, while divesting under performing natural gas assets both upstream and downstream. There is no mention of LNG Canada and Kitimat in the report. In a statement issued with the quarterly report Royal Dutch Shell Chief Executive Officer Ben van Beurden commented in part:

I am determined to get a tighter grip on business performance management in the company, and improve thebalance between growth and returns. Our financial performance for the second quarter of 2014 was more robust than year-ago levels but I want tosee stronger, more competitive results right across the company, particularly in Oil Products and NorthAmerica resources plays….

Sharper accountability in the company means that we are targeting our growth investment more effectively,focusing on areas of the business where performance improvement is most needed, and driving asset sales innon-strategic positions….

We see attractive growth opportunities there such as natural gas integration and liquids-rich shales. We are taking firm actions to improve Shell’s capital efficiency by selling selected assets and making tougher project decisions. We have completed some $8 billion of asset sales so far in 2014. This represents good progress towards our targets to focus the portfolio, and to maintain the financial framework in robust health.

Ocean acidification growing risk to west coast fishery, including crab and salmon, US studies show

The United States says acidification of the oceans means there is an already growing risk to the northwest coast fishery, including crab and salmon, according to studies released by the National Oceanic and Atmospheric Administration.

As more carbon dioxide is released into the atmosphere and absorbed by the oceans, the water is becoming more acidic and that affects many species, especially shellfish, dissolving the shells.

A NOAA study released today of environmental and economic risks to the Alaska fishery says:

Many of Alaska’s nutritionally and economically valuable marine fisheries are located in waters that are already experiencing ocean acidification, and will see more in the near future…. Communities in southeast and southwest Alaska face the highest risk from ocean acidification because they rely heavily on fisheries that are expected to be most affected by ocean acidification…

An earlier NOAA study, released in April, identified a long term threat to the salmon fishery as small ocean snails called pteropods which are a prime food source for pink salmon are already being affected by the acidification of the ocean.

Pteropod
This photograph from NOAA of a pteropod, important in the ocean diet of pink salmon, shows the first evidence of marine snails from the natural environment along the U.S. West Coast with signs that shells are dissolving. (NOAA)

NOAA says:

The term “ocean acidification” describes the process of ocean water becoming more acidic as a result of absorbing nearly a third of the carbon dioxide released into the atmosphere from human sources. This change in ocean chemistry is affecting marine life, particularly the ability of shellfish, corals and small creatures in the early stages of the food chain to build skeletons or shells.

Today’s NOAA study is the first published research by the Synthesis of Arctic Research (SOAR) program, which is supported by an US inter-agency agreement between NOAA’s Office of Oceanic and Atmospheric Research and the Bureau of Ocean Energy Management (BOEM) Alaska Region.

Canada’s Department of Fisheries and Oceans says it has ongoing studies on oceanic acidification including the role of petropods in the lifecycle of the salmon.

Des Nobles, President of Local #37 Fish [UFAWU-UNIFOR] told Northwest Coast Energy News that the fisheries union and other fisheries groups in Prince Rupert have asked both the Canadian federal and the BC provincial governments for action on ocean acidification. Nobles says so far those requests have been ignored,

Threat to crabs

The studies show that red king crab and tanner crab grow more slowly and don’t survive as well in more acidic waters. Alaska’s coastal waters are particularly vulnerable to ocean acidification because of cold water that can absorb more carbon dioxide and unique ocean circulation patterns which bring naturally acidic deep ocean waters to the surface.

“We went beyond the traditional approach of looking at dollars lost or species impacted; we know these fisheries are lifelines for native communities and what we’ve learned will help them adapt to a changing ocean environment,” said Jeremy Mathis, Ph.D., co-lead author of the study, an oceanographer at NOAA’s Pacific Marine Environmental Laboratory in Seattle, and the director of the University of Alaska Fairbanks School of Fisheries and Ocean Sciences Ocean Acidification Research Center.

As for Dungeness crab, Sarah Cooley,  a  co-author of the Alaska study, who was with the Woods Hole Oceanographic Institution at the time, told Northwest Coast Energy News, “The studies have not been done for Dungeness crab that have been done for king and tanner crab, that’s something we’re keenly aware of. There’s a big knowledge gap at this point.” She says NOAA may soon be looking at pilot study on Dungeness crab.

Healthy pteropod
A healthy pteropod collected during the U.S. West Coast survey cruise. (NOAA)

Risk to Salmon, Mackerel and Herring

In a 2011-2013 survey, a NOAA-led research team found the first evidence: “that acidity of continental shelf waters off the West Coast is dissolving the shells of tiny free-swimming marine snails, called pteropods, which provide food for pink salmon, mackerel and herring.”

The survey estimated that the percentage of pteropods along the west coast with dissolving shells due to ocean acidification had “doubled in the near shore habitat since the pre-industrial era and is on track to triple by 2050 when coastal waters become 70 percent more corrosive than in the pre-industrial era due to human-caused ocean acidification.”

That study documented the movement of corrosive waters onto the continental shelf from April to September during the upwelling season, when winds bring water rich in carbon dioxide up from depths of about 120 to  180 metres to the surface and onto the continental shelf.

“We haven’t done the extensive amount of studies yet on the young salmon fry,” Cooley said. “I would love to see those studies done. I think there is a real need for that information. Salmon are just so so important for the entire Pacific Northwest and up to Alaska.”

In Prince Rupert, Barb Faggetter, an independent oceanographer whose company Ocean Ecology has consulted for the fisherman’s union and NGOs, who was not part of the study, spoke generally about the threat of acidification to the region.

She is currently studying the impact of the proposed Liquified Natural Gas terminals that could be built at Prince Rupert near the Skeena River estuary. Faggetter said that acidification could affect the species eaten by juvenile salmon. “As young juveniles they eat a lot of zooplankton including crustaceans and shell fish larvae.”

She added, “Any of the shell fish in the fishery,  including probably things like sea urchins are all organisms that are susceptible to ocean acidification because of the loss of their capacity to actually incorporate calcium carbonate into their shells.”

Faggetter said her  studies have concentrated on potential habitat loss near Prince Rupert as a result of dredging and other activities for liquified natural gas development,  She adds that ocean acidification “has been a consideration that climate change will further worsen any potential damage that we’re currently looking at.”

Her studies of the Skeena estuary are concentrating on “rating” areas based on the food supply available to juvenile salmon, as well as predation and what habitat is available and the quality of that habitat to identify areas that “are most important for the juvenile salmon coming out of the Skeena River estuary and which are less important.”

She said that climate change and ocean acidification could impact the Skeena estuary and “probably reduce some of the environments that are currently good because they have a good food supply. If ocean acidification reduces that food supply that will no longer be good habitat for them” [juvenile salmon].

NOAA expediton
Bongo nets are deployed up to 200 meters deep to catch marine snails (pteropods), which are indicators of the progress of ocean acidification. The pteropod samples were collected during the U.S. West Coast survey cruises in 2011 and 2013. Unlike the US, Canada’s DFO is using models to track what’s happening to pteropods. (NOAA)

The  August 2011 NOAA survey of the pteropods was done at sea using “bongo nets” to retrieve the small snails at depths up to 200 metres. The research drew upon a West Coast survey by the NOAA Ocean Acidification Program in that was conducted on board the R/V Wecoma, owned by the National Science Foundation and operated by Oregon State University.

The DFO study, according to the agency website is “being examined in the context of model predictions.

Nina Bednarsek, Ph.D., of NOAA’s Pacific Marine Environmental Laboratory in Seattle, the lead author of the  April pteropod paper said, “Our findings are the first evidence that a large fraction of the West Coast pteropod population is being affected by ocean acidification.

“Dissolving coastal pteropod shells point to the need to study how acidification may be affecting the larger marine ecosystem. These near shore waters provide essential habitat to a great diversity of marine species, including many economically important fish that support coastal economies and provide us with food.”

Ecology and economy

Today’s study on the effects of acidification on the Alaska fishery study examined the potential effects on a state where the fishing industry supports over 100,000 jobs and generates more than $5 billion in annual revenue. Fishery-related tourism also brings in $300 million annually to the state.

Map of Alaska
A map of Alaska shows the economic and ecological risks to parts of the state from ocean acidification. (NOAA)

The study also shows that approximately 120,000 people or roughly 17 percent of Alaskans rely on subsistence fisheries for most, if not all of their dietary protein. The Alaska subsistence fishery is open to all residents of the state who need it, although a majority of those who participate in the subsistence fishery are Alaska’s First Nations. In that way it is somewhat parallel to Canada’s Food, Ceremonial and Social program for First Nations.

“Ocean acidification is not just an ecological problem—it’s an economic problem,” said Steve Colt, Ph.D., co-author of the study and an economist at the University of Alaska Anchorage. “The people of coastal Alaska, who have always looked to the sea for sustenance and prosperity, will be most affected. But all Alaskans need to understand how and where ocean acidification threatens our marine resources so that we can work together to address the challenges and maintain healthy and productive coastal communities.”

The Alaska study recommends that residents and stakeholders in vulnerable regions prepare for environmental challenge and develop response strategies that incorporate community values and needs.

“This research allows planners to think creatively about ways to help coastal communities withstand environmental change,” said Cooley, who is now science outreach manager at Ocean Conservancy, in Washington, D.C.  “Adaptations can be tailored to address specific social and environmental weak points that exist in a community.

“This is really the first time that we’ve been able to go under the hood and really look at the factors that make a particular community in a borough or census are less or more vulnerable from changing conditions resulting from acidification. It gives us a lot of power so that we don’t just look at environmental issues but also look at the social story behind that risk.”

As for the southern part of the Alaska panhandle nearest British Columbia, Cooley said, “What we found is that there is a high relative risk compared to some of the other areas of Alaska and that is because the communities there undertake a lot of subsistence fishing, There tend not be a whole lot of commercial harvests in the fisheries there but they are very very important from a subsistence stand point… And they’re tied to species that we expect to be on the front line of acidification, many of the clam species that are harvested in that area and some of the crab species.”

Long term effects

Libby Jewett, Director of the NOAA Ocean Acidification Program  and author of  the pteropod study said,  “Acidification of our oceans may impact marine ecosystems in a way that threatens the sustainability of the marine resources we depend on.

“Research on the progression and impacts of ocean acidification is vital to understanding the consequences of our burning of fossil fuels.”

“Acidification is happening now,” Cooley said. “We have not yet observed major declines in Alaskan harvested species. In Washington and Oregon they have seen widespread oyster mortality from acidification.

“We don’t have the documentation for what’s happening in Alaska right now but there are a lot of studies staring up right now that will just keep an eye out for that sort of thing,  Acidification is going to be continuing progressively over the next decades into the future indefinitely until we really curb carbon dioxide emissions. There’s enough momentum in the system that is going to keep acidification advancing for quite some time.

“What we need to be doing as we cut the carbon dioxide, we need to find ways to strength communities that depend on resources and this study allows us to think differently about that and too really look at how we can strengthen those communities.

Faggetter said. “It’s one more blow to an already complex situation here, My study has been working particularly on eel grass on Flora Bank (pdf) which is a very critical habitat, which is going to be impacted by these potential industrial developments and that impact will affect our juvenile salmon and our salmon fishery very dramatically, that could be further worsened by ocean acidification.”

She said that acidification could also be a long term threat to plans in Prince Rupert to establish a geoduck fishery (pronounced gooey-duck).

The popular large 15 to 20 centimetre clam is harvested in Washington State and southern BC, but so far hasn’t been  subject to commercial fishing in the north.

NOAA said today’s study shows that by examining all the factors that contribute to risk, more opportunities can be found to prevent harm to human communities at a local level. Decision-makers can address socioeconomic factors that lower the ability of people and communities to adapt to environmental change, such as low incomes, poor nutrition, lack of educational attainment and lack of diverse employment opportunities.

NOAA’s Ocean Acidification Program and the state of Alaska are also developing tools to help industry adapt to increasing acidity.

The new NOAA study is the first published research by the Synthesis of Arctic Research (SOAR) program. which is supported by an inter-agency agreement between NOAA’s Office of Oceanic and Atmospheric Research and the Bureau of Ocean Energy Management (BOEM) Alaska Region.

The pteropod study was published in April in Proceedings of the Royal Society B. The ecological and economic study is published in Progress in Oceanography.

Dump out of Kitimat, New York hedge fund tells Apache

A New York hedge fund, also known as an aggressive activist investor, which just bought a huge stake in Apache, is urging the company to get out of the Kitimat LNG project.

Numerous media reports say that Jana Partners recently bought a one billion dollar stake in the Houston and Calgary based oil and natural gas producer. Jana Logo

Bloomberg reports that Jana is a $10 billion hedge-fund firm run by Barry Rosenstein “known for pushing corporate managements to make changes”

According to both Bloomberg and the Wall Street Journal, Jana wants Apache to get out of LNG projects in both Canada and Australia and concentrate on the United States. Bloomberg says

Jana said it has “engaged in discussions with management” and urged Apache to sell its international businesses to focus on U.S. shale opportunities, exit its investment in liquefied natural gas, and be more forthcoming about how much oil and gas lie beneath its holdings in West Texas’s Permian basin, among other demands.

The Wall Street Journal says Jana believes that Apache should free up cash flow:

by exiting two major projects in Canada and Australia that aim to export natural gas, which will take years and billions of dollars to fully develop. If the company doesn’t take further steps to increase its value,

“Investors are unimpressed by [Apache]’s global diversification and have voted with their feet,” Jana wrote in a letter to investors on Monday that was reviewed by The Wall Street Journal.

Investors apparently consider the Kitimat project a drain on Apache’s capital, so far costing $2 billion in 2014. Apache CorporationThe hedge fund said the company had poor performance compared with rivals, several of which are pure-play companies that drill exclusively in U.S. shale formations such as the Permian Basin. Jana also wants Apache to consider selling itself.

According to the Wall Street Journal,  Apache raised $10 billion from selling assets around the world. In both February and May Apache said it is looking for a buyer for some of its stake in Kitimat LNG.

In Australia,Bloomberg says Apache is in early discussions with potential buyers for its stake in the $27-billion Wheatstone LNG project in Western Australia, which like Kitimat LNG it operates in partnership with Chevron. First LNG deliveries from Wheatstone are expected in 2016.

Bloomberg quotes a Jana newsletter as saying that selling Wheatstone and its stake in Kitimat would free $3 billion to $4 billion cash to fund share buybacks and reduce future spending risks.

A Calgary-based spokesman for Apache told the Financial Post said joint marketing efforts for LNG by the company and Chevron on the project are progressing, but did not offer detail. It is well known that Kitimat LNG has had a problem finding customers for the project, due to the increasing volatility of the LNG marketplace.

The Shell-led LNG Canada project has customers in the partners, KoGas, Mitsubishi and PetroChina but is also under pressure due to growing costs.

Barron’s quoting a Deutschebank analyst says Apache stockholders will likely welcome Jana’s demands.

Apache management has been active over the past 12+ months managing the portfolio. Since the February 2014 analyst meeting where the baseline expectation was that the LNG business would be retained (selling down the 50% interest in Kitimat has been a consistent goal), there has been a change in Apache’s messaging on the topic. Recent investor presentations and press articles have suggested all or part of Wheatstone could be monetized (we remove LNG capex from our EV/DACF target multiple valuation as a result). From this perspective, Jana’s proposal is likely to reach more sympathetic ears at Apache (today relative to 6 months ago), in our view. The good news for current shareholders is that the substance of the activist proposal has likely already been substantially evaluated by management and a process to this end could already be underway, if not nearing completion.

According to the Hedge Fund Letters, Jana is a very aggressive investment company

Jana Partners’ core investment strategy is primarily based upon a value-oriented (interestingly towards both value and growth stocks) and event-driven investment methodology with the ever-present tagline being “ignore the crowd”. Mr. Rosenstein…is often an activist investor, using Jana Partner’s capital (sometimes combined with others’, most famously with Carl Icahn) infusion into a company to promote change against management directives that he perceives as detrimental to shareholders.

LINKS

Wall Street Journal
Jana Partners Wants Changes at Apache: Activist Investor Wants Oil Producer to Exit Some Projects to Free Up Cash Flow

Barron’s
July 22, 2014, 10:28 A.M. ET
Apache: Not a ‘Hard Conversation’ With Jana, Deutsche Bank Says

Calgary Herald
Hedge fund Jana invests $1 billion in Apache Corp. Bloomberg

Financial Post
Apache faces breakup in Jana’s US$1-billion activist stake

Bidness Etc
Jana Partners call for Change’s in Apache’s Strategy