December 24, 2012
On Monday, Apache Corporation's (NYSE: APA ) Canadian subsidiary announced that it has formed a 50-50 joint venture with Chevron's (NYSE: CVX ) Canadian subsidiary to build and operate the Kitimat liquefied natural gas (LNG) project to develop 644,000 acres of undeveloped shale gas resources in the Liard and Horn River basins in British Columbia.
As part of the project, the joint venture will run an LNG processing plant and the Pacific Trail Pipeline. Chevron will operate the plant, while Apache will focus on upstream assets. The parties noted in a statement that "Kitimat LNG is the first mover among British Columbia LNG projects."
Currently, Encana (NYSE: ECA ) and EOG Resources (NYSE: EOG ) own separate 30% stakes in Kitimat LNG and the Pacific Trail Pipeline, with Apache owning the balance. They will sell their stakes in the pipeline and plant to Chevron, after which Apache will pay to increase its ownership interest in these assets from 40% to 50%. Additionally, Chevron will buy a 50% interest in the Liard Basin from Apache and a 50% interest in Horn River from Apache, Encana, and EOG.
Financially, formation of the joint venture is expected to result in a net $400 million payment from Chevron to Apache. Encana and EOG did not disclose the financial consequences of their respective exits from the play. This transaction is expected to close in the first quarter of 2013.
On the stock market, shares of Apache closed Monday trading down 1.6% at $78.68; Chevron down 1% at $108.63; Encana down 2.1% at $19.82; and EOG down 0.6% at $122.77.