Pieridae Energy Ltd. is moving a step closer to proceeding with a massive liquefied natural gas (LNG) plant on the Nova Scotia coast by striking a $190-million deal to buy gas-producing assets from Royal Dutch Shell PLC that would help feed the facility.
Pieridae’s acquisition includes gas production and three major processing plants, and it represents a rare deal in a Canadian gas industry that has been battered by low prices and intense competition from the United States, which was a growing export market until the shale revolution took hold in the past decade.
Under the deal, which confirmed a report by The Globe and Mail, Pieridae will pay $175-million in cash and issue $15-million worth of shares to Shell. It will fund the cash portion by issuing debt and equity, it said.
Pieridae said the acquisition of Alberta production is a key step as it prepares to make a final investment decision for its $10-billion Goldboro LNG plant, to be located northeast of Halifax. It has all of its regulatory approvals in place. Shell’s ownership in the company will be beneficial, Pieridae chief executive Alfred Sorensen said.
Shell is the lead partner and has a 40-per-cent stake in the $18-billion LNG Canada project at Kitimat, B.C., one of Canada’s biggest energy projects in history. Its international consortium gave that project the green light last year, and Pieridae aims to make Goldboro LNG the second major plant to move forward in the country. LNG exports are seen by the industry as a much-needed boost to demand for the fuel, and to investor sentiment toward the sector as a whole.
“Obviously they are a big player in the LNG story and we’ll take advantage of their expertise anyway we can while they are a shareholder, and hopefully they’ll remain one for a while,” Mr. Sorensen said in an interview.
Besides providing the supply to eventually fill the plant, the deal will make Pieridae a sizable player in Western Canada’s natural gas production and processing business, and is aimed at improving the profitability of its other production assets, he said. The company bought Alberta gas producer Ikkuma Resources Corp. for $94-million last year.
“That is probably the most important gain we get out of it – that we have an ability to survive the next four years while we prepare for the LNG project,” Mr. Sorensen said.
The market has so far been skeptical of Pieridae’s prospects. The shares have tumbled 68 per cent this year, last selling for 86 cents on the TSX Venture Exchange.
With the acquisition, Pieridae will get production of 28,600 barrels of oil equivalent a day as well as the Caroline, Jumping Pound and Waterton gas plants in southern Alberta. Shell has operated in the region for seven decades. Pieridae will retain the Shell employees at the production sites as well as some in Calgary that support the business, Shell said.
The company plans to use TC Energy and Enbridge Inc.-owned pipelines to ship Alberta gas to the plant. It has signed a long-term sales agreement with Uniper, a German utility. The acquired assets allow Pieridae to provide enough gas to meet the sales contract.
Meanwhile, the German government has stated the company is eligible in principle for up to US$4.5-billion in loan guarantees, including US$1.5-billion for upstream natural gas development. One of the stipulations is that any production paid for with the upstream portion is not extracted using multistage hydraulic fracturing, so the southern Alberta conventional assets fit the bill.
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Jeffrey Jones