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Chevron in talks to sell stake in Canada LNG project

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Reuters are reporting that Chevron Corp is exploring options including the sale of a minority stake in its Canadian LNG project as it pushes ahead.

Among the parties in talks with Chevron for a possible stake in Kitimat LNG are Petroliam Nasional Bhd, or Petronas, which scrapped its own US$36 billion LNG project in British Columbia last year due to challenging market conditions.

There is no certainty that Chevron would proceed with the stake sale.

Chevron is also considering selling a stake in the project to a financial investor such as a Canadian pension fund or a private equity firm.

Canadian companies Seven Generations Energy Ltd and Tourmaline Oil Corp are in discussions to supply natural gas to Chevron’s project. Seven Generations may also consider buying a stake in the project by partnering with other gas producers.

While any possible deal with a financial investor would be strictly a cash infusion to help support the cost of building the project, a deal with a producer could be structured as a commitment to supply natural gas to the plant for a period of 20 to 25 years.

Canadian pension funds have a huge appetite for infrastructure-style assets that offer stable cash flows over a long period, and pipeline investments tend to have those attributes.

The project in British Columbia, a 50/50 joint venture with Australia’s Woodside Petroleum Ltd, has a 20 year, 10 million tpy export license for LNG and is expected to cost tens of billions of dollars to build.

Kitimat could become one of the largest capital investments in a Canadian energy project.

Taking such a substantial investment decision has been difficult for the duo, given concerns over a global LNG supply glut for the last three years. Fierce political opposition in Western Canada to building pipelines and other energy infrastructure has also escalated in the last several years.

However, surging gas demand from China and Southeast Asia is reassuring export project developers that the market cycle is finally beginning to turn.

Located about 1400 km north of Vancouver, the Kitimat project was earmarked to utilise shale gas extracted in the northern part of British Columbia and export LNG to energy-hungry markets in Asia.

San Ramon, California-based Chevron acquired its 50% stake in Kitimat in early 2013 from EOG Resources Inc and Encana Corp.

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