Aux Sable Canada to Build Septimus Gas Pipeline in Montney Following Acquisition of Crew Energy's Gas Processing Plant

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Researched by Industrial Info Resources (Sugar Land, Texas)--Gas processing firm Aux Sable Canada LP (ASC) (Calgary, Alberta) has acquired the Septimus gas plant of Crew Energy Incorporated (TSX:CR) (Calgary) near Fort St. John in the northeast region of British Columbia as part of its development plans for the Montney gas play. Earlier this month, the firm also received regulatory approval for construction of the Septimus gas pipeline from the British Columbia Oil and Gas Commission. The Septimus gas plant has a processing capacity of 25 million cubic feet per day.

In August 2009, ASC entered into an agreement with Crew Energy to acquire the latter's Septimus rich-gas processing plant at the cost of construction, which is about $22.5 million, when the plant came into operation. ASC also proposed to construct and operate a pipeline, 20.8 kilometers long and 20 inches in diameter, to transport sweet natural gas, which contains natural gas liquids (NGLs), from the Septimus plant to the Alliance pipeline. The new pipeline will start about 16 kilometers south of Fort St. John and traverse private agricultural land as well as forested land in British Columbia's Agricultural Land Reserve.

At the time, ASC announced that it expected construction of the pipeline to begin in early 2010, following receipt of all regulatory approvals and permits, and take about three months for completion. ASC engaged local contractors for the project. Prospect Land Services (BC) Limited (Fort St. John) is serving as the land agent; Heritage North Consulting Limited (Fort St. John) undertook archaeological assessment of the pipeline project; and FCS Land Services Limited Partnership (Duncan, British Columbia), a subsidiary of Focus Corporation (Calgary), undertook surveys of the pipeline route. Focus Corporation and Integrated Pipeline Projects Canada Limited (Calgary) were engaged to provide engineering, procurement and construction (EPC) services for the project.

The Septimus gas plant was commissioned in October 2009 and is being contract-operated by Crew Energy. ASC and Crew Energy plan to expand the throughput of the plant to 50 million cubic feet per day. Crew Energy has the option to re-acquire a 50% stake in the facility prior to any expansion program, or undertake to double the capacity of the facility at its own expense prior to January 1, 2013, and gain a 50% stake in the expanded facility.

Construction of the Septimus gas pipeline commenced recently and is scheduled for completion in the second quarter of this year. The project is expected to generate 150 employment opportunities during peak construction. Macro Industries Incorporated (Huntsville, Alabama) has been awarded the pipeline construction contract.

Established as part of the Alliance pipeline development project, ASC owns exclusive rights to extract NGLs from gas transported through the pipeline. The Septimus pipeline will enable ASC to transport rich natural gas that would otherwise need to be processed for removal of butane and propane. Through elimination of this processing step, ASC intends to reduce truck traffic that is associated with removal of liquids at the Septimus gas plant. Crew Energy also has the option to participate in the Septimus pipeline project along with ASC, with a working interest of 50%. The pipeline is also being designed to accommodate potential growth in volumes from Crew Energy and other producers in the region. Through delivery of gas and liquids to Chicago, ASC hopes to gain increased access to export markets, and provide an alternative gas processing and transportation facility to producers in British Columbia.

According to data from British Columbia's Ministry of Energy, Mines and Petroleum Resources, the region's shales have an estimated capacity to hold 250 trillion to 1,000 trillion cubic feet of in situ gas. According to a study conducted by the ministry in 2005, the northeastern region of British Columbia alone has an estimated in situ gas capacity of more than 500 trillion cubic feet. Studies conducted in 2006 estimate in situ gas capacity at 30 trillion to 200 trillion cubic feet in Upper Montney, and 50 trillion to 500 trillion cubic feet in Lower Montney.

The Montney play trend covers an area of nearly 1 million hectares in the South Peace region, with proven production in the Fort St. John and Dawson Creek areas of Upper Montney. ARC Energy Trust (OTC:AETUN) (Calgary), EnCana Corporation (NYSE:ECA) (Calgary), Murphy Oil Corporation (NYSE:MUR) (El Dorado, Arizona), Storm Exploration Incorporated (TSX:SEO) (Calgary), Duvernay Oil Corporation (Calgary), Talisman Energy Incorporated (NYSE:TLM) (Calgary), and Canadian Spirit Resources Incorporated (CVE:SPI) (Calgary) are among the major players in this region.

Crew Energy controls 184 sections in the Montney play and reportedly has invested more than $79 million to develop gas production in this area. Drilling efforts in the Septimus region have shown promising results with wells testing at rates as high as 15 million cubic feet per day. The firm is producing gas at a restricted rate of 7 million cubic feet per day. At the end of January 2009, cumulative gas production by various players in Montney amounted to approximately 190 billion cubic feet.

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