What Apache’s New Plans Could Mean for Canadian Natural Gas

Apache is said to be looking to disinvest from an Australian LNG project, while continuing to move forward with a similar project in Canada.

| More on:
The Motley Fool

Bloomberg is reporting that Apache Corporation (NYSE: APA) is looking for a buyer for its stake in Chevron’s (NYSE: CVX) Wheatstone liquefied natural gas project in Australia. At the same time, Apache and Chevron continue to move forward on a similar, though currently less expensive, project in Canada.

One of the reasons for this is that Apache sees the opportunity to realize more value in its Canadian project than to continue pouring more money into what is turning out to be a very expensive Australian venture.

What is Wheatstone?

Chevron and its partners are planning to invest a total of U.S.$27 billion to build the Wheatstone LNG project in Western Australia. The project is expected to produce 8.9 million tons of liquefied natural gas per year starting in 2016. However, in order to get to that point, the partners still need to pour a lot of capital into the project.

Apache, which owns a 13% stake in the project, is expected to spend $1.4 billion this year and another $800 million next year to fund its portion of the project’s costs. However, the costs of Australian LNG projects like Wheatstone have severely overrun previous budgets, which is one reason why big oil companies like Chevron are simply drowning in high-cost projects and why Apache wants out.

Apache, like many other energy companies, is looking to cut back on capital spending as its not providing the returns it had hoped. When it comes to Wheatstone, in addition to saving the $2.2 billion in future capital spending, Apache could net as much as $2.5 billion for its stake in Wheatstone.

That’s a lot of money for the company, which it could use to buy back its stock or invest in more appealing projects like its Kitimat LNG project with Chevron in Canada. While Apache is said to want to reduce its 50% stake in that project, it’s not looking to fully exit like it is with Wheatstone as it sees value in moving that project forward.

Why the Kitimat LNG project makes more sense

Apache needs the Kitimat project to move forward so that it can unlock its vast natural gas position in Canada. Apache believes that its position in the Liard Basin holds upwards of 48 trillion cubic feet of natural gas. For perspective, that’s enough natural gas to meet the energy needs of 48 million households for 15 years. That’s a lot of natural gas, considering that only about 35 million people live in all of Canada. Needless to say that the only way for Apache to unlock value from that position, as well as its position in the gas-rich Horn River Basin, is to export gas to energy-hungry Asia.

That’s why plans for Kitimat continue to move forward, with TransCanada (TSX: TRP)(NYSE: TRP) recently announcing plans to build a $1.9 billion pipeline to move natural gas to the Kitimat facility. The TransCanada pipeline could be complete as early as 2020, which is when Apache and Chevron should be able to begin sending gas to Asia.

While that timetable shows that the project is a few years behind Wheatstone, given all of the cheap natural gas that Apache can produce in Canada, as well as the lower cost to bring Kitimat online, Apache should come out well ahead by sticking with this Canadian venture.

As the cost of Australian LNG projects spiral out of control, it’s opening up the opportunity for investments in cheaper Canadian LNG projects. That could work to Apache’s benefit as it stands to reap large profits out of its Canadian LNG project. That facility really is the key for the company’s ability to monetize the world-class shale gas position it owns in Canada’s Liard and Horn River Basins.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo doesn’t own shares of any of the companies mentioned in this article.

More on Investing

Bank sign on traditional europe building facade
Bank Stocks

Is Now the Right Time to Buy Canadian Bank Stocks?

Some bank stocks, like Toronto-Dominion Bank (TSX:TD) are doing well; others, not so much. Is it time to buy bank…

Read more »

A worker uses a laptop inside a restaurant.
Tech Stocks

2 Promising Growth Stocks to Buy in December 2022

Growth investors had better act fast, because these fire-sale prices won’t last forever. Here are two discounted growth stocks to…

Read more »

Electricity high voltage pole and sky
Dividend Stocks

Should You Buy Algonquin Stock Now or Wait?

Algonquin Power stock has a massive 9.8% dividend yield today! Is now the time to buy or should income investors…

Read more »

A worker gives a business presentation.
Bank Stocks

BMO Stock Rose 6% in November: Is it a Buy Today?

Is it time to buy BMO stock?

Read more »

tsx today
Energy Stocks

TSX Today: Stocks to Watch on Monday, December 5

Canadian stocks may remain volatile ahead of the Bank of Canada’s upcoming interest rate decision due on Wednesday.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Investing

Better Buy: RBC Stock or the Entire TSX?

Royal Bank of Canada (TSX:RY) is a robust stock, but the index fund could be better long term.

Read more »

Family relationship with bond and care
Investing

Retirees: 2 Top TSX Dividend Stocks to Buy for TFSA Passive Income

Top TSX dividend stocks now trade at discounted prices for TFSA investors seeking passive income.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Metals and Mining Stocks

Beat the TSX With This Unstoppable Dividend Stock

This dividend stock continues to outpace the TSX and then some, providing you with a dividend that you'll want to…

Read more »