Birchcliff Energy and AltaGas have entered a definitive agreement for a long-term natural gas processing arrangement at AltaGas’ deep-cut sour gas processing facility located in Gordondale, Alberta.
The new processing arrangement will replace the parties’ existing Gordondale processing arrangement.
As part of the deal, Birchcliff is being provided with up to 120 million cubic feet a day (mmcf/d) of natural gas processing on a firm-service basis, and its take-or-pay obligation is 100mmcf/d.
Subject to extension in accordance with the agreement, the duration of the processing arrangement is for at least 15 years.
Birchcliff president and chief executive officer Jeff Tonken said: “This new arrangement with AltaGas provides long-term natural gas processing and will reduce our fees at the Gordondale Facility.
“An added benefit of this arrangement for Birchcliff is that we will not have to incur significant capital to build our own deep-cut facility at Birchcliff’s natural gas processing plant in Pouce Coupe, Alberta.
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“We had previously commenced the planning and initial work to further expand the processing capacity of our Pouce Coupe gas plant by 150mmcf/d to 490mmcf/d (Phase VII) and by 100mmcf/d to 590mmcf/d (Phase VIII). In light of this new processing arrangement, we currently have no plans to proceed with Phases VII or VIII.”
As a result of the processing arrangement and other recent initiatives undertaken by Birchcliff, it is updating the guidance range for its 2018 annual average operating expense to $3.40 barrels of oil equivalent (boe) to $3.60boe.
AltaGas president and chief executive officer David Harris said: “The new arrangement with Birchcliff is a significant win for both parties. The Processing Arrangement allows us to maximise the long-term value and returns from the Gordondale Facility, which is one of our key assets.
“The agreement fills the existing capacity at the Gordondale Facility and significantly enhances the potential to flow third-party volumes through the facility and to grow those volumes, allowing us to eventually optimise the facility and bring the operating capacity up to 150mmcf/d, while providing lower fees for Birchcliff.”
Apart from the processing arrangement, the two companies and certain affiliates of AltaGas have entered a product purchase and sale agreement.
Pursuant to the deal, Birchcliff will sell propane to the AltaGas parties, including for delivery to AltaGas’ proposed Ridley Island Propane Export Terminal, which is anticipated to begin commercial operations in the first quarter of next year.