Korea Gas Corp. is making a $565-million investment in two promising natural gas plays in northeastern British Columbia, becoming the latest South Korean company to push into Canada's energy sector.
The state-owned company will earn a 50 per cent interest in land blocks in the Montney and Horn River Basin shale formations under a three-year farm-in deal with Calgary-based gas giant EnCana Corp. (TSX:ECA).
"This gives us an opportunity to accelerate development faster than we would have otherwise and bring some of this additional gas potential to market," EnCana spokesman Alan Boras said Monday.
Korean news reports on Sunday said Korea Gas envisions spending $1.1 billion over five years in those lands, though the actual deal with EnCana covers a smaller investment over a shorter time.
South Korea, which has negligible petroleum resources of its own, is a voracious consumer of natural gas, using some 1.2 trillion cubic feet of the fuel last year.
The company has already signed an agreement to buy liquefied natural gas from an export terminal planned for Kitimat, on British Columbia's northern coast, that would have a capacity of 700 million cubic feet per day.
Liquefied natural gas, or LNG, is created when natural gas is condensed into a liquid state in extremely cold temperatures. The process enables the resource to be transported overseas on specialized tankers.
The EnCana deal with Korea Gas underlines how important it is for B.C. gas producers to seek out international outlets for their volumes, said Ralph Glass of AJM Petroleum Consultants
"To me it's just one more piece of the puzzle," Glass said.
"By Korea putting this money behind it, my perception is they're looking for that gas to come to their market."
The Kitimat terminal is 51 per cent owned by Texas-based Apache Corp. (NYSE:APA), which is a joint-venture partner with EnCana in the Horn River. Another major Horn River producer, EOG Resources Inc. (NYSE:EOG), has also committed gas to the project.
The Kitimat terminal is expected to begin operations in 2014. In addition to Korea Gas, Spain's Gas Natural has agreed to buy some of the LNG shipments from the plant.
In October, another South Korean energy company, Korea National Oil Corp., acquired Calgary-based Harvest Energy Trust for $4.1 billion.
Through the deal, Korea National Oil gained control of a troubled refinery in Come by Chance, N.L., as well as conventional oil properties in western Canada and a smattering of oilsands leases.
EnCana Corp. became a pure-play natural gas company late last year when it spun off its oil assets into a new firm called Cenovus Energy Inc. (TSX:CVE).
Korea Gas and EnCana would each have a 50 per cent interest in about 10,000 hectares in the Horn River Basin, and roughly 52,000 hectares in the Montney region further south.
EnCana shares rose about 2.6 per cent to $35.38 on the Toronto Stock Exchange in Monday afternoon trading.