New EPCC contractor to replace KBR on Pieridae Goldboro LNG Project

Daily Oil Bulletin Elsie Ross Wednesday, August 12, 2020, 11:49 AM MDT

Pieridae Energy Limited says it expects to have a new engineering, procurement, construction and commissioning (EPCC) contractor in place for its Goldboro LNG project by the end of this month.

Bids for the project close later this week and of the six companies interested in bidding at least four are expected to provide a lump sum turnkey type of EPCC contract which will allow for continued financing of the project, Alfred Sorensen, Pieridae’s chief executive officer, said in a conference call this morning to discuss second quarter 2020 results.

The major criteria in selecting a new contractor will be its ability to meet Pieridae’s June 2021 target for a final investment decision, he said. “We do not believe at this time that a change of contractors will affect our FID decision next year.”

Sorensen said the company has reached a resolution with Kellogg Brown & Root Limited (KBR) following its earlier announcement that it was no longer prepared to negotiate and conclude a lump sum EPCC contract for the Nova Scotia facility. As part of the resolution, Pieridae acquires the right to transition all of KBR’s work product created to date to a replacement EPCC contractor.

In the meantime, Pieridae continues to work on six priority areas outside the scope of the EPCC fixed contract which account for about 20 per cent of the overall cost. It hopes work will begin before the end of this year.

Pieridae also continues to work on its relationship with the federal government in support of the project, said Sorensen, noting that it earlier invested about $275 million in the LNG Canada project off the West Coast. “We want this project to be seen as a national project that will help Canada come out of the COVID crisis,” he said.

“We think we are shovel worthy and that we meet some of the key requirements of the government.” Those include climate change as providing LNG to Germany would help that country to shift from coal for power generation while the use of waste heat from the LNG facility to generate electricity would do the same in Canada, said Sorensen.

Pieridae also would be able to start work on the project within weeks of a funding decision while its partnerships with First Nations should help to achieve reconciliation.

In response to an analyst’s question, Sorensen said his company has not had any discussions with TC Energy Corporation about a possible equity stake in the Goldboro project. “We are still focused on more of a contractual relationship,” he said. “That’s part of our overall discussions we are having with the government of Canada [about] how to move that pipeline construction work forward.”

Financial results

Second quarter and first half 2020 results benefited from expanded natural gas production, condensate and NGL from the southern Alberta Foothills assets and the addition of third-party processing revenue in the second quarter and first half of 2020/ results

Revenue (net of royalties) in the three months ended June 30, 2020 increased to $68.9 million from $13.4 million, including NGL and condensate revenue of $16.9 million as well as third-party processing fees of $6.9 million. Petroleum and natural gas revenue in the second quarter of 2020 was $45.22 million, up from $13.53 million in the 2019 quarter.

Adjusted funds flow from operations was $12.47 million in the second quarter of 2020 compared to a negative $6.52 million in the comparable 2019 period.

Net operating income for the second quarter was $19.3 million compared to a loss of $1.93 million in the 2019 quarter and $38.5 million for the first half, up from $3.23 million in the previous year’s first half.

The net loss for the second quarter of 2020 was $13.4 million in the second quarter of 2020 and $24.88 million for the first half of 2020 compared to net losses of $19.53 million and $32.53 million in the 2019 second quarter and first half respectively.

Capital expenditures were $264,000 in the quarter versus $917,000 in the 2019 period and were $2.29 million for the six months (2019-$32.52 million). Project investment decreased to $4.39 million in the quarter from $8.76 million in 2019 as a previously planned turnaround at Jumping Pound was deferred as a result of the global pandemic. For the six months ended June 30, 2020, project investment was consistent at $9.88 million.

“We achieved these strong results through our positive hedging strategy, limiting non-essential capital and operating spending and taking active steps to reduce administrative costs,” Sorensen said in a statement. “As a result of the Alberta Foothills asset acquisition, revenue was up more than 400 per cent year-over-year on a Q2 basis, production climbed 185 per cent and we continued to operate our assets safely and reliably.”

Second quarter 2020 production increased to 43,791 boe/d from 15,368 boe/d in the 2019 quarter.

Realized natural gas prices were $1.87/mcf compared to benchmark prices of $1.88/mcf during the quarter.

Pieridae continues to have a strong hedging program in place with 40 per cent to 60 per cent of net production hedged on a boe basis. It realized a gain of $8.2 million during the quarter, for a total of $12.7 million on a year-to-date basis.

Pieridae and Shell Canada Energy continue to work together with the Alberta Energy Regulator (AER) on the license transfers of its Southern Alberta Foothills assets to Pieridae. Although that isn’t anticipated to occur before the end of 2020, Pieridae continues to operate all the assets and it’s “business as usual,” said Sorensen.

Canada’s Pieridae settles with KBR on Goldboro work [update]

Natural Gas World Dale Lunan August 12, 2020

Canadian LNG developer Pieridae Energy said August 12 it had reached an agreement with engineering contractor KBR following its decision earlier this year to quit engineering, procurement, construction and commissioning (EPCC) work. The decision left Pieridae’s Goldboro LNG project in the lurch.

“As part of the resolution, Pieridae acquires the right to transition all of KBR’s work product created to date to a replacement EPCC contractor,” Pieridae CEO Alfred Sorensen said. “We are in the midst of discussions with other firms that have expressed strong interest in concluding a lump sum turnkey EPCC contract for the LNG facility.”

During an August 12 conference call with analysts, Sorensen said discussions are ongoing with six potential EPCC providers, four of which are prepared to enter into the kind of lump sum turn key contract that KBR moved away from. Bids from potential providers are due August 14, Sorensen said, and a new contract should be in place by the end of the month.

Pieridae still expects to make a final investment decision on the 10mn mt/yr Goldboro LNG project by the end of June 2021, he added.

Sorensen revealed the agreement as Pieridae Energy released second quarter results showing “solid results quarter after quarter” and strong metrics in revenue, net operating income and daily production. The improvements, Sorensen said, largely reflected Pieridae’s acquisition last summer of Anglo-Dutch major Shell’s Foothills natural gas assets.

“As a result of the Alberta Foothills asset acquisition, revenue was up more than 400% year over year on a Q2 basis, production climbed 185%, and we continued to operate our assets safely and reliably,” Sorensen said.

Progress is also being made for Shell and Pieridae to re-apply to the Alberta Energy Regulator for licence transfers associated with the acquisition, he added.

Net revenue in Q2 2020 increased to C$68.6mn (US$51.8mn) from C$13.1mn. Net operating income rose to C$19.3mn from a loss of C$1.96mn in Q2 2019, and was consistent with net operating income in the past three quarters since the Shell acquisition was completed.

Natural gas sales volumes in Q2 averaged 208.7mn ft3/day, up from 90.9mn ft3/day in the same period a year ago. Sales of natural gas liquids and condensate averaged 9,000 b/d, up from 211 b/d in Q2 2019.

Pieridae Has Prospects for New Engineer August 13, 2020 Dan Walsh

Pieridae Energy is generating solid cash flow from its Alberta foothills production camp, as it navigates the latest hurdle for advancing its proposed LNG export terminal in Goldboro.

The Calgary-headquartered junior producer and development-phase firm, led by CEO Alfred Sorensen, reported Wednesday an operating profit of $19.3 million for the three months ending June 30.

That's a positive swing of $21.1 million, compared to a net operating loss of $1.9 million during the same period a year ago.

The turnaround reflects Pieridae's $190-million acquisition of Shell Canada's western gas and liquids projects - assets central to its plan to supply Goldboro with LNG.

These plans were dealt a setback last month, when the engineering firm hired to deliver a guaranteed cost estimate for the Goldboro LNG project backed out of its deal (see 2020-07-14).

Sorenson said Wednesday that Kellogg Brown & Root has agreed to hand over all its EPCC (engineering, procurement, construction and commissioning) work to a replacement contractor.

Pieridae is currently in discussions with five other firms "that have expressed strong interest in concluding a lump sum turnkey EPCC contract" for Goldboro, Sorensen said in a release.

Despite historically low commodity prices, its liquids and gas pickup from Shell pushed Pieridae's quarterly revenue to $68.6 million, up from $13.4 million last year.

Its operating netback - or profit - rang in at $4.84 per barrel of oil equivalent, a slim margin that underscores the cratering economics of Western Canada's oil and gas industry.

Pieridae booked a $13.3-million net loss for the quarter, driven by a non-cash depletion and depreciation charge of $10.1 million on its Foothills assets.

The company also expensed $4.1 million in development costs on Goldboro as it worked with KBR on planning and pre-construction.

The gas sales "provide Pieridae the liquidity it needs to continue to operate its assets, as well as to further de-risk the development work required for the Goldboro LNG project to get to a positive final investment decision," the company said in a release.

Production averaged 43,791 barrels of oil equivalent (boe) per day, up from 15,368 boe/d last year.

It consisted of 208.6 million cubic feet a day of natural gas, 8,838 bb/d of natural gas liquids, 3,171 bb/d of condensate and 1,970 tonnes per day of sulphur.

Sorensen also said the company and Shell are working with the Alberta energy regulator to address liability concerns around environmental clean-up issues (see 2020-05-15).

While the regulator has held up transferring over Shell's licence for two gas plants, Pieridae still owns and operates the assets and says the company is not expecting any material changes to arise.

Pieridae is forecasting 2020 net operating income to land between $70 million and $90 million, and production between 40,000 and 45,000 boe/d.

Capex is expected to ring in at $15 million, with another $16 million in Goldboro development expenses.

Operating costs are forecast between $11.50 to $13 boe, and Pieridae plans to hedge between 40% to 60% of its sales.

It held cash of $10.5 million and long-term debt of $210.2 million.

The net book value of its assets stands at $477.3 million.

Shares closed up three cents at 36 cents (52-week high/low: $1.09/12 cents).