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Shell to Divest Alberta Gas Assets to Pieridae for C$190M

Zacks Equity Research

Royal Dutch Shell plc RDS.A is set to jettison natural gas assets in Alberta to Canada’s Pieridae Energy for C$190 million ($144.77 million). Pieridae intends to use the production from these assets to secure natural gas supply required for the first train of the flagship Goldboro LNG project.

Per the deal, the Anglo-Dutch giant will offload all upstream and midstream assets in Alberta’s Foothills region. The upstream assets to be acquired by Pieridae netted approximately 29,000 barrels of oil equivalent per day to Shell in first-quarter 2019. This constituted about 120 million cubic feet per day (MMcf/d) of natural gas, 5,600 barrels per day (bbl/d) of natural gas liquids, and 3,200 bbl/d of condensate and light oil.

Pieridae will also acquire three sour gas plants namely Jumping Pound, Caroline and Waterton, with a combined capacity of 750 MMcf/d. The firm will also take possession of a 1700-kilometer pipeline network and 14% stake in a sulfur plant. The deal is to be funded by cash and the issuance of stocks. Subject to satisfactory closing conditions and regulatory approvals, the transaction is set for closure in third-quarter 2019. 

With the deal, Pieridae moves a step closer to proceeding with the $10-billion Goldboro LNG plant in Nova Scotia. Production from the acquired assets will be used by Pieridae as Goldboro LNG feedstock. In addition to securing natural gas supplies, the deal will make Pieridae a major player in the Alberta midstream and upstream industry. The assets to be acquired complement the existing Alberta properties of Pieridae and will provide operational synergies to the firm.

The company, which is seeking additional sources of natural gas for the Goldboro LNG plant, expects to ramp up its drilling program in the Foothills region over the next four years. The Goldboro project is likely to produce about 10 million tons of super-cooled LNG per year. The LNG is to be shipped mainly to European customers.

Pieridae intends to use the pipelines owned by TC Energy TRP and Enbridge, Inc. ENB to ship Alberta gas to the Goldboro plant. Pieridae already has a 20-year sales agreement with German utility giant Uniper for the full capacity of Goldboro's first train and half of the total project.

Pieridae, which already has all the necessary regulatory approvals for the LNG plant in place, is yet to make the final investment decision on the project. If the Goldboro project gets greenlighted, it will be the second major LNG plant in Canada after Shell’s $31-billion LNG project in Kitimat, British Columbia.Shell is currently the largest shareholder of the LNG Canada project with a 40% stake, with PETRONAS, PetroChina PTR, Mitsubishi and KOGAS being the other partners.

While Shell is building Canada’s first LNG export terminal, it has divested all other operations in the country, including Alberta oil sands. The Zacks Rank #3 (Hold) supermajor intends to streamline portfolio and explore U.S. shale plays, much opposed to deploying money across capital-intensive operations in Canada. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the Canadian energy sector — which used to be a booming market — has not witnessed any major milestones over the past few years. Industry downturn, coupled with infrastructure deficiencies and U.S. shale revolution had hit the country hard. With the cancellation of major projects like Northern Gateway, Pacific NorthWest and Energy East, along with uncertainties associated with the existing ones, things had been quite dispiriting for investors in the Canadian oil energy space. 

Kitimat and Goldboro LNG plants have brought a ray of hope to the country’s energy industry’s plight. Notably, demand for LNG has been robustly growing of late, primarily as China and other Asian countries are making efforts to switch from coal to natural gas, which is touted to be the cheaper and cleaner burning fuel. 

Due to Canada’s proximity with the Asian markets and robust natural gas production in British Columbia and Alberta, the nation is a much-preferred destination for LNG export facilities. The startup of Kitimat and Goldboro projects is likely to unleash a new LNG wave in the nation.  

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