Mitsubishi Corporation (“MC”) has announced that today it has entered into an agreement (the “Agreement”) in connection with investing in a natural gas development project centered on shale gas in the Cordova Embayment of northeastern British Columbia, Canada. The project is owned by a senior independent Canadian oil and natural gas producer, Penn West Energy Trust (“PWE”), which is headquartered in Calgary. The Agreement shall become effective following approval by MC’s Board of Directors at a meeting scheduled for mid-September and approval for the acquisition from the Canadian Federal Government, etc.

 

After the Agreement coming into effect, Cordova Gas Resources Ltd., a subsidiary established by MC in Calgary, will acquire a 50% interest in shale gas assets, conventional natural gas assets and related natural gas facilities in several sections owned by PWE. An unincorporated joint venture (“JV”) to be formed with PWE will actively develop and produce natural gas.

 

PWE is a promising partner with a significant position in the Cordova Embayment, which boasts a high quality shale gas resource comparable to the top tier shale gas resources in North America. PWE has been conducting initial drilling operations since 2006 and, based upon third party evaluations, Mitsubishi believes that the shale gas resources in this project are approximately 5~8 trillion cubic feet (MC estimate, over 100~160 million tons in LNG equivalents). The potential of this enormous resource could greatly exceed Japan’s natural gas annual demand.

 

Effect of the Agreement will serve as a fillip for development of shale gas in these sections, where the current plans of the JV are to lift current output of approximately 30 million cubic feet per day to approximately 500 million cubic feet per day (approximately 3.5 million tons of LNG equivalents per year) based upon current and anticipated economic, regulatory and market conditions. MCs equity share of production will be 50%. MC will promote development and production in this region for over the next 50 years together with PWE and market natural gas of MC’s equity share of production in the North American market, partly through CIMA Energy Ltd., a U.S.-based gas marketing company in which MC has a 34% equity interest.

 

MC’s total acquisition cost will be approximately CAD$450 million (approximately ¥36.2 billion). In addition to approximately CAD$250 million (approximately ¥20.1 billion) as consideration for the purchase of 50% of existing assets, MC will fund an additional approximately CAD$200 million (approximately ¥16.1 billion) of the future exploration and development capital expenditures to be born by PWE. Going forward, this project will drill more than hundreds to 1,000 wells for coming 15 years. The cost of MCs contribution to this period is approximately estimated at ¥300 billion. Subsequent development plan and project cost will be sequentially examined.

 

RBC Rundle, a division of RBC Capital Markets, acted as exclusive financial advisor to MC in the transaction.

 

Shale gas can now be produced in large volumes at competitive cost thanks to recent technological innovations. Because shale gas projects tend to establish large reserves, it has attracted attention worldwide as a new natural gas resource. Leveraging today’s investment, MC intends to build up its knowledge and expertise in the shale gas business with the aim of acquiring more assets in North America. As part of its resource and energy strategy going forward, MC also aims to secure a stable supply of energy resources by diversifying its asset holdings, including through the acquisition and development of unconventional natural gas sources such as shale gas.

 

 

PWE is one of the largest conventional oil and natural gas producers in North America and the largest producer of light and medium oil in western Canada. With a long history of natural gas production operations in the Cordova region, PWE is the largest producer of conventional natural gas in this area, also holding the largest interests in shale gas. In addition, PWE owns the only natural gas processing facility in this area.

 

Name	Penn West Energy Trust
Head Office	Calgary, Alberta, Canada
Representative	William Andrew (CEO)
Established	1922
Sales	CAD$3.2 billion (2009)
Employees	Approximately 2,000

 

1. Reason for establishment

Newly established as a holding company to make business investments in this project.

 

2. About the subsidiary to be established

 

(1) Name	Shale Gas Investment Cooperatief U.A.
(2) Location	Vinoly Building, 12th Floor, Claude Debussylaan 28, 1082 MD, Amsterdam
(3) Name and position of representative	President & Secretary, Tetsuro Kuwabara
(4) Business	Holding company for Cordova Gas Resources Ltd.
(5) Capital	CAD$250 million (When the Agreement is effected. As of establishment, CAD$1)
(6) Date of establishment	August 18, 2010
(7) Major shareholder and equity stake	Mitsubishi Corporation  100%
(8) Relationship between listed companies and Shale Gas Investment Cooperatief U.A.	As of March 31, 2010 there are no material capital, personnel, or trading relationships with any listed companies, because this is a newly established company.
(9) Consolidated business results for the past three years, and consolidated financial position	No data because the company is newly established.

 

3. Outlook

This project is expected to have only a negligible effect on the consolidated business results for the current period. Effects on consolidated business results for the next period and onward will be notified as they become known.

1. Reason for establishment

Newly established as a subsidiary of the above-mentioned holding company to hold the interests of this project and to be the operating body for the project.

 

2. About the subsidiary to be established

 

(1) Name	Cordova Gas Resources Ltd.
(2) Location	4500, 855 2nd Street SW, Calgary, Alberta, Canada
(3) Name and position of representative	President & Secretary, Tetsuro Kuwabara
(4) Business	Exploration and production of natural gas, primarily shale gas in the Cordova Embayment
(5) Capital	CAD$250 million (When the Agreement is effected. As of establishment, CAD$1)
(6) Date of establishment	August 17, 2008
(7) Major shareholder and equity stake	Shale Gas Investment Cooperatief U.A.  100%
(8) Relationship between listed companies and Cordova Gas Resources Ltd.	As of March 31, 2010 there are no material capital, personnel, or trading relationships with any listed companies, because this is a newly established company.
(9) Consolidated business results for the past three years, and consolidated financial position	No data because the company is newly established.

 

3. Outlook

This project is expected to have only a negligible effect on the consolidated business results for the current period. Effects on consolidated business results for the next period and onward will be notified as they become known.

A form of unconventional natural gas, shale gas is found trapped in shale, a layer of solidified mud sediment referred to as source rock. Since this natural gas is trapped in sediments of extremely low permeability, it is difficult to extract and has not been developed up until not long ago. However, recent advances in technology have drawn attention to shale gas as a viable resource for development. Enormous reserves of shale gas have been confirmed in North America with an estimated total in-place reserve of 4,000 trillion cubic feet. The reserves in Western Canada are said to account for around one-quarter of this amount.

 

The emergence of shale gas, and the so-called “Shale Gas Revolution,” have prompted the U.S. to review its original policy on importing energy, which had predicted an inevitable increase in reliance on imports of LNG. Like other types of natural gas, shale gas releases considerably less CO₂ than oil or coal when burned, and is seeing growing demand as a source of clean energy.