Mitsubishi Corporation (“MC”) has announced that today it has agreed to acquire a 40% Partnership interest in the Cutbank Ridge Partnership (“CRP”), which was formed to develop a natural gas asset located in the Montney land of northeastern British Columbia, Canada. CRP was originally formed by Encana Corporation (Headquarters: Calgary), Canada’s largest natural gas producer, and an Encana affiliate. CRP holds 409,000 net acres of high-quality undeveloped Montney land, plus additional undeveloped similar size land targeting other opportunities including Cadomin and Doig geological formations. The transaction is scheduled to close by the end of February 2012.
MC has established a wholly owned subsidiary company Cutbank Dawson Gas Resources Ltd. (Headquarters: Calgary) that will become the Partner to CRP. Under the transaction agreements, MC will pay CAD$1.45 billion as an upfront payment upon closing, and will also pay another CAD$1.45 billion over the coming five years that will be used to fund an incremental 30%, in addition to MC’s 40% of the Partnership capital investments, to develop CRP’s asset in accordance with an agreed-upon development plan.
Encana, Managing Partner of CRP, has an excellent track record and innovative production technologies for developing natural gas resource. CRP’s land position is one of the largest and highest quality undeveloped natural gas assets in the Western Canadian Sedimentary Basin. When coupled with Encana’s extensive knowledge of natural gas development in the Montney region with more than 290 producing wells, MC believes that CRP’s land stands as the best development opportunity currently available in the region.
The total estimated ultimate recoverable resources from CRP’s land are more than 35 trillion cubic feet (equivalent to approximately 720 million tons). These huge reserves equate to approximately nine years of Japan’s annual natural gas demand. The Partnership plans to invest more than CAD$6 billion over the next 5 years to drill approximately 600 horizontal production wells to develop the asset. The asset is expected to have more than 50 years of production life and reach production of more than 3 billion cubic feet per day (equivalent to approximately 22.5 million tons per year) during the coming decade.
MC is currently undertaking natural gas development in the Cordova Embayment in British Columbia with Penn West Exploration, Chubu Electric Power Co., Inc., Tokyo Gas Co., Ltd., Osaka Gas Co., Ltd., Japan Oil, Gas and Metals National Corporation (“JOGMEC”) and Korea Gas Corporation. In addition, MC is currently pursuing the export of natural gas in the form of liquefied natural gas (LNG) with the anticipation of sourcing natural gas produced from MC’s asset portfolio as feedgas. With the acquisition of additional natural gas resources announced today, MC will accelerate the LNG feasibility studies. Going forward, MC will contribute to economic development and job creation in Canada, while ensuring stable supplies of energy to Japan and the rest of Eastern Asia.
Natural gas can now be produced in large volumes at competitive cost due to technological innovations developed in recent years. Given the large reserves and resources potential, natural gas has attracted attention worldwide. MC intends to continue to build its knowledge and expertise in natural gas development. As part of its resource and energy strategy going forward, MC also aims to secure stable supply of energy resources by diversifying its asset holdings.
Barclays Capital is acting as financial advisors, and Bennett Jones LLP is acting as legal advisor to MC on this transaction.