Contact Exploration, Pieridae Energy Partner on Gas Production for LNG Export, Canada

Contact Exploration Inc. and Pieridae Energy Limited announced the creation of a new natural gas-focused exploration and production entity – Pieridae Production Limited Partnership (PPLP).

PPLP has been formed by Pieridae and Contact to source, develop and produce natural gas to serve as significant portion of the feedstock for Pieridae’s proposed Goldboro LNG Terminal in Guysborough, Nova Scotia. The proposed terminal is anticipated to receive, liquefy and export up to about ten million metric tons of natural gas per year and have on-site storage capacity of 690,000 cubic metres of liquefied natural gas.

Upon completion of the terminal, North American natural gas supplies are to be transported to Goldboro, Nova Scotia, using existing pipelines and exported by ship to international markets. The Partnership will focus on securing and developing natural gas assets onshore Atlantic Canada and the eastern United States for the Goldboro terminal and, upon completion, the Partnership’s production and reserves are to be dedicated to the facility.

The initial assets acquired by PPLP consist of approximately 50,000 acres of lands prospective for natural gas development within New Brunswick, initially held by Contact. As consideration for the indirect contribution of a 15% working interest in the Assets into the Partnership, Contact has received an initial cash payment of $1.3MM from Pieridae and has been issued common shares of Pieridae equal to 15% of Pieridae’s currently issued and outstanding shares.

The quantity of shale gas resource contained on PLPP’s lands within the Frederick Brook Member of the Albert Formation was the subject of an independent study (GLJ Study) effective December 31, 2010, conducted for Contact by GLJ Petroleum Consultants Ltd. of Calgary, Alberta in accordance with the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

The GLJ Study states that, as at the effective date thereof, the best estimate of prospective resources on the Partnership’s lands is 2.138 TCF based on a 20% recovery factor of the undiscovered petroleum-initially-in-place of 10.897 TCF gross and 10.690 TCF Partnership working interest (98.1%). The GLJ Study concludes that recovery factors should range between 10 and 30 percent for such resources, with a P50 case of 20 percent.

The GLJ Study further concluded that the low estimate of prospective resources on the Partnership’s lands is 750 BCF and that the high estimate of prospective resources on the Partnership’s lands is 4.492 TCF, based on a 20% recovery factor. See Contact’s press release dated January 25, 2011 for more information respecting the Assets and the results of the GLJ Study. The Hiram Brook Member within PLPP’s lands has also tested natural gas and is believed to be highly prospective, however an independent resource study has yet to be completed on this formation. There is no certainty that any portion of the resources associated with the Assets will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Initial ownership of PLPP will be 85% Contact and 15% Pieridae. An additional $15.4 million of third-party equity funding for the Partnership is currently being sought and coordinated by Pieridae, which once invested, will reduce Contact’s ownership in the Partnership to 50%. Contact has created a wholly-owned subsidiary to manage PPLP (Contact Opco). Contact Opco is to provide management and administrative services to the Partnership on a long-term contractual basis and will be compensated for such services through a combination of fixed monthly fees and incremental fees based on capital expenditures, production and completion of acquisitions and dispositions by the Partnership. Pending the completion of the initial funding of $15.4 million into the Partnership, which is expected to be completed no later than July 2014, the fees payable to Contact Opco for its management services will be funded by Pieridae through capital contributions into the Partnership.

Steve Harding, President and CEO of Contact Exploration commented, “This is an exciting new platform for Contact to expand and diversify its opportunity portfolio. We are ideally positioned to source and develop long-term sustainable feedstock for the proposed Goldboro LNG Terminal by leveraging our long-standing history in Atlantic Canada and our tight gas expertise from Western Canada. By combining efforts with Pieridae and their extensive knowledge of North American gas transmission systems and global LNG markets, we believe that the Partnership will be a valuable entity integral to advancing the success of the Goldboro LNG Terminal.”

Alfred Sorensen, President and CEO of Pieridae, said, “Goldboro LNG creates an opportunity for further exploration and production of natural gas resources in Atlantic Canada and northeastern United States. We are pleased to form a partnership with Contact to advance natural gas resource development in the region and secure a North American supply for export to global markets.”

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LNG World News Staff, March 05, 2013; Image: Goldboro LNG