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Douglas Channel is pictured in an aerial view in Kitimat, B.C., on Tuesday January 10, 2012. (DARRYL DYCK/THE CANADIAN PRESS)
Douglas Channel is pictured in an aerial view in Kitimat, B.C., on Tuesday January 10, 2012. (DARRYL DYCK/THE CANADIAN PRESS)

As Apache seeks partners for Kitimat LNG project, B.C. minister pegs threshold at $1-billion Add to ...

Apache Corp. is sweating about the growing cost of laying the groundwork for a potential liquefied natural gas plant in Kitimat. But the minister responsible for LNG says any company seeking to explore its options in British Columbia should expect to spend in excess of $1-billion just to get to the point where they can make a final investment decision.

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Faced with the prospects of high front-end costs – $1-billion this year alone – Apache’s CEO said Wednesday the company needs to “right-size” and reduce its stake in Kitimat LNG by hunting for new partners.

Rich Coleman, Natural Gas Development minister, said in an interview Wednesday he’s not concerned that the high cost of exploring LNG in B.C. will scare off investors.

“Each one of these [proponents] expects to spend over $1-billion to get to final investment decision. That’s amazing.”

There are currently a dozen LNG projects on the books in B.C., but until the province releases its entire tax and regulatory framework, no company is expected to formally commit. The province is promising tax legislation this fall, and is expected to reveal more details about environmental regulation and benefit-sharing plans for First Nations this spring.

Another key detail that the province has to address is how to assure investors that it can provide the skilled work force needed to build these multibillion-dollar projects.

Mr. Coleman said he is not alarmed that Apache Corp. is seeking to spread out the project’s escalating costs – it’s not unusual, he said, to see that kind of readjustment as the various proponents manoeuvre, trying to balance interests in both upstream and downstream production. “It’s part of the business, I’m told.”

Mr. Coleman added that the preparation for the Kitimat LNG project has been particularly intensive. “They have already in their case knocked off the top of a mountain, built an industrial road 19 kilometres into their site,” he noted. There are only a handful of engineering firms capable of delivering the planning required.

Apache officials say that it has been the company’s intent to lower its interest in Kitimat LNG ever since Chevron joined the joint venture in late 2012 because the LNG project would be too costly otherwise for only two U.S. partners to undertake.

Apache Corp. chief executive officer Steven Farris said Wednesday that the Houston-based company is seeking to reduce its position as one of two co-owners in Kitimat LNG. The Canadian units of Apache and Chevron Corp. each own 50 per cent of the project.

During a webcast, Mr. Farris said Apache would need to contribute $1-billion as its share of $2-billion in estimated costs in 2014 related to front-end engineering and design for an LNG export terminal at Kitimat in northwestern British Columbia.

But he reiterated comments that he made earlier this month, saying that Apache is rebalancing its energy portfolio and it would be too costly for the company to bear the massive development bills under the current structure of only two co-owners.

“We have always said that we would like to sell an equity position,” Apache spokesman Bill Mintz said in an interview from Houston. “We will continue to maintain a material interest in the project. We desire to reduce our exposure in 2014.”

On Tuesday, Malaysia’s state-owned Petronas said it plans to add two new Asian partners to the Pacific NorthWest LNG project in British Columbia, with the latest co-owners also agreeing to buy LNG.

The Apache-Chevron joint venture is slated to follow a similar course, adding Asian buyers that would both participate in producing natural gas and also purchasing LNG.

Follow us on Twitter: @brentcjang, @justine_hunter

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