Asian investors line up to acquire shale gas assets.. Petronas signs C$1.07 billion deal to develop Progress’ Montney shale.

Progress Energy Resources Corp has executed a binding framework agreement to create a strategic partnership with PETRONAS, to develop a portion of Progress' Montney shale assets in the Foothills of northeast British Columbia. Progress will sell 50% of its working interest in its Altares, Lily and Kahta properties (the North Montney Joint Venture) to PETRONAS for C$1.07 billion. The deal is PETRONAS’ first foray in Canada. BMO Capital Markets acted as exclusive financial advisor to Progress on this transaction. Bank of America Merrill Lynch is the exclusive financial advisor to PETRONAS on this transaction.

Under the terms of the framework agreement, PETRONAS will pay 25% of the total consideration (C$267.5 million) in cash at closing and 75% of the total consideration in the form of a capital carry whereby PETRONAS will pay 75% of Progress' share of future capital expenditures in the North Montney Joint Venture over the next five years to a total of C$802.5 million.

Source: BMO Capital Markets Website

Assets under JV

The North Montney Joint Venture comprises 149,910 working interest acres in which PETRONAS will acquire a 50% interest and Progress will be the operator. The North Montney Joint Venture lands represent approximately 20% of Progress' rights in its northeast British Columbia Foothills land holdings, which total approximately 700,000 net acres. Progress holds approximately 900,000 net acres of Montney rights over its entire British Columbia and Alberta land base, making it one of the largest Montney land rights holders. The joint venture properties include five wells with minimal production at this time. Petronas said the possible resources could be as high as 15 trillion cubic feet.

LNG options

In addition to the above Transaction, PETRONAS and Progress will establish an LNG export joint venture to be 80% and 20% owned, respectively. The LNG Export Joint Venture will launch a feasibility study to evaluate building and operating a new LNG export facility on the West Coast of British Columbia. PETRONAS would be the operator of this facility, and PETRONAS and Progress would jointly market the LNG utilizing PETRONAS' well-established and extensive network of customers in the largest LNG markets globally.

In connection with the LNG Export Joint Venture, PETRONAS will provide a standby equity financing commitment of up to $600 million, for Progress' capital requirements arising from the North Montney and LNG Export joint ventures from which Progress can draw down at the time of a successful LNG final investment decision.

Asian investors busy in American shale business

Recently, other Asian majors such as PetroChina, Korea Gas, Mitsui, Mitsubishi and Reliance had also ventured into North American shale gas plays. Since the last quarter of 2010, Asian companies have invested around $8 billion on Montney shale. PetroChina clinched the biggest deal (C$5.4 billion) in Montney with Encana in early 2011. Notably, Talisman and Sasol finalised two joint ventures in Montney shale.

The following table shows the list of significant Montney deals sourced from Derrick Petroleum E&P Transactions Database.

Source: Derrick Petroleum E&P Transactions Database