Mitsubishi in JV with Canada’s Penn West Energy for shale gas project

Japan's largest trading house Mitsubishi Corporation (MC) has entered into an agreement with Canada's Penn West Energy Trust (PWE) to form a strategic joint venture to develop PWE's gas assets in north-eastern British Columbia.

The 50:50 Cordova joint venture will develop shale gas assets located in the Cordova Embayment area and certain conventional gas assets in the Wildboy area of the province. PWE will serve as operator of the assets, a statement released by PWE yesterday said.

Under the agreement, MC will commit approximately C$850 million ($802 million) to the JV. Initial C$250 million will be paid to acquire the stake in the assets and the remaining C$600 million will be for the capital expenditure related to exploration and development of the resources.

Through the partnership PWE expects to accelerate the exploration and development of its shale gas asset, supporting the company's corporate strategy of maintaining a balanced portfolio of assets. The agreement also provides a foundation for long-term relationship with MC, who has world-wide experience in major project development.

PWE will sell its 50-per cent working interest in the Wildboy conventional gas assets, 550,000 gross acres of land including around 120,000 acres of promising shale gas property in the Cordova Embayment. In addition, the deal includes the stakes in Wildboy gas processing facility, a gas pipeline connecting the area to the TransCanada gathering system in Alberta, and associated infrastructure.

In a separate statement, MC said that it will form a wholly-owned subsidiary Cordova Gas Resources Limited, which will form the joint venture with PWE.

Calgary-based PWE is one of the largest independent oil and gas producers in North America. It is the largest producer of conventional gas in the Cordova region and also holds large interest in shale gas. The energy major reported revenue of C$3.2 billion in 2009 and has around 2,000 employees.

PWE's exploratory activities in the region since 2006 have indicated up to 8 trillion cubic feet (cu ft) of shale gas resources. The JV plans to raise the current production from the levels of around 30 million cu ft per day to 500 million cu ft per day by 2014.

MC and PWE have ambitious plans to drill hundreds of wells in the Cordova Embayment area in the next 15 years, and Mitsubishi anticipates an investment of approximately $3.5 billion during the period as its share for the project.

The transaction and formation of the JV is expected to close by 23 September 2010, subject to required customary and regulatory approvals.

Tokyo-based MC is Japan's largest general trading company with over 200 bases of operations in approximately 80 countries worldwide. Together with its over 500 group companies, MC covers diverse business areas including energy, metals machinery, chemicals, food etc and employs a workforce of approximately 60,000 people.

Shale gas, a form of unconventional natural gas trapped in shale, have drawn attention in recent times as a viable energy source further to latest technological advancements for its extraction. Like other forms of natural gas, it emits considerably less carbon dioxide compared to coal and oil, and is seen as a cleaner source of energy.

North America is estimated to possess approximately 4,000 trillion cubic feet of shale gas reserves, of which about a quarter is located in western Canada.

In June, PWE announced closing of another JV with an affiliate of China Investment Corporation, the nation's sovereign wealth fund, for the development of oil sand assets in Alberta which involves a Chinese investment of approximately C$1.25 billion.