Pacific Northern Gas Ltd.
TSX : PNG
TSX : PNG.PR.A

Pacific Northern Gas Ltd.

February 07, 2011 06:00 ET

PNG Agrees to Sell Its 50% Interest in Pacific Trail Pipelines for $50 Million to Apache Canada and EOG Canada

-- Long term transportation service agreements concluded with Apache Canada and EOG Canada to improve capacity utilization on PNG's existing pipeline system

-- PNG to operate PTP's KSL Pipeline for at least seven years under an operating and maintenance agreement negotiated as part of the sales transaction

-- Incremental revenue under these agreements to enable PNG to reduce gas delivery rates to its existing customers when the KSL Pipeline commences operations

PNG will host a conference call and webcast Monday, February 7 at 1:00 p.m. EST (10:00 a.m. PST)

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 7, 2011) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that it has agreed to sell its 50 percent interest in the Pacific Trail Pipelines Limited Partnership (PTP) for $50 million. The transaction has two parts, with the first payment consisting of $30 million that PNG will receive on closing and a second payment of $20 million which PNG will receive when the purchasers decide to proceed with construction of the Kitimat liquefied natural gas (LNG) facility. The transaction, which is subject to standard industry conditions and consents, is scheduled to close by the end of February 2011.

The purchasers are PNG's Calgary-based partners in the KSL Pipeline, Apache Canada Ltd. (Apache Canada) and EOG Resources Canada Inc. (EOG Canada). As a result of the transaction Apache Canada'sownership of the pipeline will increase from 25.5 percentto 51 percent and EOG Canada's ownership will increase from 24.5 percent to 49 percent.

PTP is the developer of the proposed 463 kilometre, KSL natural gas pipeline from Summit Lake, B.C. to Kitimat, B.C. The KSL Pipeline would serve the planned Kitimat LNG facility owned by Apache Canada and EOG Canada. The Kitimat LNG facility and the KSL Pipeline have the support of, and will provide benefits to, many stakeholders including the First Nations with traditional territories in the project area.

"We believe that the transaction delivers full and fair value for our stake in PTP and provides significant benefits for all PNG stakeholders," said Roy Dyce, President and CEO of PNG. "We did not initiate the transaction, but negotiating with our partners was the right thing to do. We recognized the value to be obtained from closely coordinating the development and financing of both the KSL Pipeline and Kitimat LNG export facility. Now there is an increased likelihood that these projects will move forward." Mr. Dyce further noted that, "The long term transportation service agreements negotiated with Apache Canada and EOG Canada will significantly increase capacity utilization on PNG's existing pipeline system."

Benefits to PNG shareholders

PNG shareholders will benefit from the full crystallization of $50 million in cash proceeds, which have an approximate value of $9 to $10 per share after taxes and related expenses including payments under the KSL management incentive plan. In light of the incentive plan, the Board of the Directors established a Special Committee comprised of the independent Directors to review the transaction.In approving the transaction the Board relied on the recommendation of the Special Committee and on financial advice received fromits financial advisor, BMO Capital Markets.

PNG's Board is currently reviewing its business strategy in light of the anticipated receipt on closing of the first $30 million tranche of sale proceeds. PNG intends to announce its strategy to shareholders over the coming weeks.

Benefits to PNG customers

The operating and transportation service agreements negotiated by PNG as part of the sales transaction will generate incremental revenue that will result in PNG's customers receiving reductions in gas delivery rates similar to those that would have prevailed if PNG had continued to own a 50 percent stake in PTP.

Under the operating agreement PNG will be compensated for operating the KSL Pipeline for at least the first seven years following its expected completion in 2015. The agreement is subject to five year renewals thereafter. PNG expects the operating agreement will produce significant synergies, with substantial benefits flowing back to PNG's customers in the form of reduced transportation costs.

The 20 year transportation service agreements with Apache Canada and EOG Canada require them to use a portion of PNG's current pipeline capacity in the event that it is not first claimed by a separate LNG export project sponsored by LNG Partners, LLC of Houston, TX. Either way, there would be a significant increase in the throughput for PNG's existing pipeline, lowering the average cost of transporting gas for all customers.

If the LNG Partners project does not proceed, and the Kitimat LNG facility does proceed, Apache Canada and EOG Canada would use up to 50 million cubic feet per day of PNG's existing pipeline capacity to supplement KSL Pipeline throughput. Initial deliveries via PNG would be 30 million cubic feet of gas per day starting with initial LNG production. Delivery of an additional 20 million cubic feet of gas per day via PNG would commence if liquefaction capacity is later increased.

About the Kitimat LNG Facility

The Kitimat LNG facility is a proposed liquefied natural gas export facility in British Columbia. Located on Bish Cove, it will have an initial output capacity of 5 million metric tonnes per annum and is expected to be operational in 2015. Apache Canada is the managing partner of KM LNG Operating General Partnership, which owns 51 percent of the Kitimat LNG facility and is the facility operator. EOG Canada, through its wholly owned subsidiaries, owns the remaining 49 percent of the Kitimat LNG facility.

About the LNG Partners Contract with PNG

Of the two LNG export projects proposed for Kitimat, the project supported by LNG Partners is smaller. LNG Partners transportation service agreement with PNG has an option, ahead of Apache Canada and EOG Canada, yet to be exercised, to use 80 million cubic feet per day of capacity on PNG's pipeline system, which has total capacity of approximately 115 million cubic feet per day. LNG Partners must decide by June 30, 2012 whether to exercise its option. If it does, PNG's transportation service agreements with Apache Canada and EOG Canada would terminate.

Backgrounder on PNG's involvement in PTP

When PNG originally became involved in PTP in 2005, it appeared that North American natural gas supplies were dwindling and might need to be supplemented with imported LNG from overseas. Along with a partner, PNG originally planned to expand the capacity and reverse the flow of PNG's existing pipeline.The expanded and reversed pipeline was to have delivered gas to North American markets from a new LNG import facility at Kitimat. The change of focus to LNG exports occurred in 2008 as advanced natural gas exploration technology created a surplus of North American natural gas.

Investor conference call and webcast

PNG has scheduled an investor conference call and webcast at 10:00 a.m. Pacific Time (1:00 p.m. Eastern Time) on Monday, February 7, 2011. During the call PNG's President and Chief Executive Officer Roy Dyce will brief investors and other interested parties with regard to the PTP transaction. The webcast will be open to all to listen, but Mr. Dyce will take questions only from analysts and institutional investors.

Participants dialing in by telephone should use the following telephone numbers:

Telephone number: 1-866-696-5910 Passcode: 1576766

Parties in Toronto may also dial in locally at 416 340-2217

Those interested in listening to the webcast may do so by following the links from PNG's website, www.png.ca.

Forward-looking statements

This news release contains forward-looking statements relating to the sale of PNG's interest in PTP, development and construction of the KSL Pipeline and the Kitimat LNG facility, the potential transaction benefits for PNG shareholders and other stakeholders, and the potential for the LNG project supported by LNG Partners.

All forward-looking statements are based on management's beliefs and assumptions based on information available at the time the assumption was made and on its experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances. Management of PNG believe the expectations reflected in such statements are reasonable but no assurance is given that such expectations will be correct as forward-looking information is subject to various risks and uncertainties that are known and unknown, including those material risks discussed in PNG's MD&A and in its 2010 Annual Information Form. In particular, but without limitation, there are no assurances that the conditions to closing will be satisfied or that of the sale of PNG's interest in PTP will be completed, that a notice to proceed with construction of the Kitimat LNG terminal will be issued by December 31, 2013, triggering the payment of the $20 million contingent portion of the purchase price for PNG's interest in PTP or that the Kitimat LNG terminal will achieve commercial production on a timely basis.

About Apache Canada Ltd.

Apache Canada Ltd., a subsidiary of Apache Corporation, is one of Canada's top oil and gas producers with operations in Alberta, British Columbia and Saskatchewan. For more information about Apache Canada, visit www.apachecorp.com/Canada.

About EOG Resources Canada Inc.

EOG Resources Canada Inc. is a wholly owned subsidiary of EOG Resources, Inc., one of the largest independent (non-integrated) oil and natural gas companies in the United States with proved reserves in the United States, Canada, Trinidad, the United Kingdom and China. EOG Resources, Inc. is listed on the New York Stock Exchange and is traded under the ticker symbol "EOG". For more information, visit www.eogresources.com.

About Pacific Northern Gas

Headquartered in Vancouver, British Columbia, PNG (TSX:PNG)(TSX:PNG.PR.A) owns and operates natural gas transmission and distribution systems. PNG's western transmission line extends from the Spectra Energy gas transmission system north of Prince George to tidewater at Kitimat and Prince Rupert, and provides service to 12 communities and a number of industrial facilities. In the northeast, PNG's subsidiary Pacific Northern Gas (N.E.) Ltd. provides gas distribution service in the Dawson Creek, Fort St. John and Tumbler Ridge areas. Further information is available on PNG's website at: www.png.ca.

Contact Information

  • Pacific Northern Gas Ltd. - Investor Inquiries
    Kevin Teitge
    Vice President, Corporate Development & Treasurer
    (604) 691-5689
    or
    Pacific Northern Gas Ltd. - Media Inquiries
    Greg Weeres, P.Eng.
    Vice President, Operations & Engineering
    (604) 691-5677
    www.png.ca