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Kufpec-Chevron Canadian shale gas venture to help anchor expansion: Kufpec CEO

Highlights

Kufpec's new Canadian shale gas joint venture with Chevron will be an "anchor project" for the Kuwaiti state-owned company in the coming decade that could pave the way for the company's participation in further North American oil and gas projects, its CEO said Tuesday.

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"We are securing Kufpec's future," Sheikh Nawaf al-Sabah told Platts.

"The project's ramp-up will take a few years, but it will move quickly and there will be a long, stable plateau," he added. "This would be a significant percentage of our production."

Kufpec, the upstream oil and gas investment arm of Kuwait Petroleum Corp., announced Monday its $1.5 billion deal with Chevron's Canadian unit to develop liquids-rich shale gas resources in Western Canada. The transaction, expected to close in November, will give Kufpec a 30% interest in Chevron's entire position in Canada's Duvernay basin, amounting to 330,000 net acres of Chevron-operated leases in the Kaybob area of Alberta.


The high liquids content of the Kaybob Duvernay shale gas resources, combined with well-developed infrastructure for transporting condensate to a conveniently located market, is the key to making the development economically attractive.

"If it were just dry gas, we would not be nearly as interested," Sheikh Nawaf said.

Kaybob, in west-central Alberta, is well-connected by local pipeline infrastructure to the major cluster of oil sands projects in the northeast of the province, he noted, adding that producers of bitumen from Canadian oil sands purchase large volumes of condensate for their operations. Canadian bitumen, a near solid grade of ultra-heavy crude, must be blended with condensate if it is to flow through pipelines to processing facilities or refineries.

While much of the Duvernay shale's condensate output is likely to be consumed locally, the gas will be pumped into Alberta's well-developed regional pipeline system, which is extensively connected to trans-continental mainlines serving the rest of Canada and parts of the US.

Sheikh Nawaf was not especially bullish on the medium-term outlook for Canadian wellhead gas prices, further underscoring the importance of liquids production to the success of Duvernay shale development. He said the sales price for the gas was largely irrelevant to project economics, which did not depend on Canadian gas accessing new international markets.

Chevron is known to be seeking a new partner for its proposed Kitimat LNG project which, if built, would export liquefied gas from a terminal on Canada's West Coast to markets in the Asia-Pacific region and elsewhere. However, Kufpec considered that project as entirely separate from the Duvernay development, Sheikh Nawaf said.

In terms of its exposure to LNG, Kufpec was already a 13.4% equity partner Australia's massive Wheatstone floating LNG project, which is operated by Chevron, he noted.

SEEKS ACCESS TO NEW TECHNOLOGY

Sheikh Nawaf said one of his objectives as CEO of Kufpec was to forge international partnerships that would enhance Kuwait's access to emerging oil and gas technology. Knowledge areas currently on his radar included heavy oil, high pressure-high temperature oil reservoirs, deep gas, and shale resource development and drilling technology.

In the shale and drilling area, he felt the new Canadian deal with Chevron, already an international partner for Kufpec, offered real opportunities for technology transfer. That was important for the Kuwaiti company's first venture into North America.

"We are looking at other (North American) opportunities, some of which are shale, others tight gas and oil," he elaborated. "The idea is to find the right reserves, the right rocks."

In Sheikh Nawaf's estimation, Canada's Duvernay play, and particularly the development potential of the Kaybob area, fulfilled those criteria.

"It's a big play and Kaybob is in the prime part of the liquids-rich potential, comparable to the best of Eagleford," he said, referring to the lucrative onshore Texas shale development.

In addition, Kufpec's CEO praised Canada's business environment as "friendly" to international investors with negligible political risk. The company's previous failure to close an oil sands joint venture agreement with another Canadian company was not due to political or regulatory obstacles, he said.

Sheikh Nawaf, citing a confidentiality agreement with Chevron, declined to disclose estimates of the new joint venture's resources or production target. Kufpec was aiming to raise its total output to 200,000 b/d of oil equivalent/d by 2020, he said.

Kufpec's most recent annual report put the company's average production at 74,778 boe/d in 2013, down slightly from 75,765 b/d in 2012.

In the report, Sheikh Nawaf, who assumed the position of Kufpec CEO in early 2013, said the company was embarking on a new phase of international expansion combined with rationalization of its existing portfolio.

Kufpec currently has oil and gas operations Europe, the Middle East, Africa, South and East Asia, the Asia-Pacific region and Australia.

--Tamsin Carlisle, tamsin.carlisle@platts.com
--Edited by Kevin Saville, kevin.saville@platts.com