The long-term deal signed between the National Gas Company (NGC) and Canadian company Touchstone Exploration Inc is worth between $1.6 and $2.2 billion, according to Touchstone’s chief executive officer Paul Baay.
In a five-minute interview on Friday with Proactive London’s Katie Pilbeam, Baay said the deal was probably the biggest the Canadian company will ever sign.
“The real headline number here is this is a contract that is probably worth somewhere between $1.6 and $2.2 billion over the term of the asset, by far the biggest contract that Touchstone will probably ever sign, so it really monetises the asset,” Baay said.
“It is going to take all the gas from Ortoire goes to this contract and it really gives us a stable long-term supply and some real visibility for shareholders to see what the value of the asset is worth.”
In a release on Friday, NGC president Mark Loquan said the deal signalled an important milestone in this country’s gas story.
“NGC is unwavering in its commitment to secure natural gas through innovation and strategic partnerships, especially in these challenging times. This is notable because onshore natural gas production has been for so long overlooked in the sector,” Loquan said.
During his interview, Baay described NGC as a ‘solid partner’ for Touchstone.
“NGC itself is not only a domestic aggregator, they have done some international things, they are rated by three different organisations and most importantly, they are backed by the government,” Baay said.
Asked to elaborate on the pricing mechanism used for the contract, Baay said the contract was covered by a Non-Disclosure Agreement (NDA.)
“They (NGC) are pretty careful about disclosing prices but what I can tell you is that a lot of the analysts, three or four of the analysts that cover us, have done some really good independent research in what they have done and if I was to take an average of those, it’s about $2.50 an Mcf and I can tell you that’s fairly consistent in what we are seeing without actually giving the number away.”
According to Investopedia, Mcf is the abbreviation used to represent one thousand cubic feet of natural gas. The US Energy Information Administration lists the cost of natural gas per Mcf as US$3.16 as of September 2020.
Baay went on to explain to the pricing mechanism, saying, “I think the really key thing about the contract is that it is a wellhead price, so the only thing that comes off of that is a small amount for operating costs. When I say small amount, probably a nickel (US five cents) and then 12.5 per cent royalty and everything else goes in the bank for us, there is no transportation, there is no processing, there is no pipelines that we have to build or anything like that.”
He described the contract as ‘user-friendly’ for Touchstone and said it was a predictable revenue stream down the road for the company. He said before the start of the new year, Touchstone will begin testing in Chinook-1 in the Ortoire Block and should get results by January. The company will then move on to testing in the Cascadura Deep fields.
Baay said the gas production will be done in two tranches.
“The first is a small one which is the Coho-1 volumes which were discovered in 2020, they will come on in the first quarter and the big step change will be in the fourth quarter of 2021 when Chinook-1 and the two Cascadura wells will come on. We think it will probably be somewhere between 80 and 100 million cubic feet a day and 2,000 barrels a day in liquids.”