Apache Corporation pulling out of proposed Kitimat LNG project

The company also announced in its second quarter report that it plans to completely exit the Wheatstone LNG project in Australia.

Apache had said in the past said that it was looking to “right size” its participation in the Chevron Corporation-operated Kitimat LNG project by selling some of its 50% stake.

In addition, Apache is evaluating its international assets and exploring multiple opportunities, including the potential separation of some or all of these assets through the capital markets.

Apache had been under pressure from activist investor JANA Partners LLC, which wanted Apache to free up cash flow by exiting the two major LNG projects in Canada and Australia that aim to export natural gas.

The planned project in Canada has until now struggled to secure a long-term offtake agreement with an Asian buyer.

“Quite simply, I think that the costs do not generate the types of returns their investors expect — massive costs, minimum returns,” said Dirk Lever, managing director of institutional equity research with AltaCorp Capital Inc. “Activist investors are pushing for capital to be deployed in higher yielding investments with [shorter] time horizons.

“LNG is for IOC and NOCs with very long time horizons. Perhaps someone will take them out. [Encana Corporation] and [EOG Resources, Inc.] exited earlier when it was obvious they could not attract contracts or pony up for the costs. Despite being large, they were not large enough.”

Under a deal that closed in early 2013, Chevron Canada Corporation and Apache Canada Ltd. each became a 50% owner of the Kitimat LNG plant, the Pacific Trail Pipelines and 644,000 gross undeveloped acres in the Horn River and Liard basins.

It’s unclear what will happen to the upstream partnership, now that Apache has decided to exit the Kitimat LNG project. A spokesperson for Apache wasn’t immediately available.

“Chevron cannot comment on Apache’s plans to manage their joint venture interest in the Kitimat and Wheatstone LNG projects,” Chevron spokesperson Gillian Robinson-Riddell said when asked about the future of the upstream portion of the partnership.

Chevron bought into the project by taking out Encana’s and EOG’s positions in Kitimat.

EOG had entered the project by agreeing to acquire the shares of Galveston LNG Inc., a private Calgary-based company whose subsidiary Kitimat LNG Inc.was helping to develop the export facility. At the time, Kitimat LNG owned 49% and Apache earlier in the year had acquired 51% of the planned project.

Encana entered the project in early 2011.

Image via WikiMedia Commons.