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KANATA could spend $500 million north of Fort St. John

Interview: President and CEO, Kevin Cumming

A Calgary-based private midstream infrastructure and service company is making inroads into Northeast B.C., starting with an agreement to build significant natural gas infrastructure in the Daiber area, about 150 kilometres northwest of Fort St. John.

KANATA Energy Group Ltd. has entered into definitive agreements with UGR Blair Creek Ltd. to own and construct this infrastructure, which includes a gas refrigeration plant.

In an interview with the Alaska Highway News, president and chief executive officer Kevin Cumming would not divulge the precise financial terms of that arrangement, but he said it is part of KANATA’s overall strategy that could see the firm spend more than $500 million in Northeast B.C.

Cumming said that “typically on a refrigeration kind of plant, it would be about $1 million for a million cubic feet. That’s a rule of thumb, but every plant is different.”

This refrigeration plant will have a capacity of 25 million cubic feet a day.

“If you take a look at our strategy in Northeast B.C., there’s about $500 million as a starting point for us in that area,” he said. 

“Probably a little more than that with the strategy that we have. So we’re starting at Daiber; we have four other locations we’d like to build out with other types of infrastructure. At the end of the day, it would be more than $500 million if it all came to fruition.”

KANATA is a private equity firm with investors including ARC Financial, Energy Spectrum Capital and Teachers' Private Capital.

The Daiber facilities have received regulatory approval, and construction is underway. KANATA is planning on operating the plant by January 2015. The facilities include compression, dehydration, refrigeration and condensate stabilization.

The CEO also confirmed that KANATA is already planning a facility expansion there.

“We have two assets that are there,” said Cumming. “We have some existing compression and dehydration for dry gas that is being developed there – that’s being expanded right

"We’re going to have about 25 million cubic feet a day in capacity there. Then we have a refrigeration plant that’s going in, with dehydration and compression at Daiber, and that’s another 25 million cubic feet a day.”

Northeast B.C. is one of two core areas where the firm plans to deploy at least $1 billion. The other is somewhere on the Alberta side of the Montney formation. The precise location in Alberta has not been decided, nor has the exact disposition of the $1 billion.

Cumming is excited about the North’s energy potential.

“It’s an area that is short on infrastructure and really needs to develop over the next few years: gas plants, pipelines – everything. The resource is so massive,” he said.

“We’re really gung-ho. We’ve got a strategy for the area and what we’d like to do in the area and we’ve got to get people on board.”


KANATA, background

Cumming launched KANATA in 2012 with about $330 million in investments, and since then has added a hand-picked team that now includes 15 people.

KANATA’s ownership structure allows it to take on slightly more risk than what Canadian companies might be accustomed to. But it’s the high-reward play that they’re after.

The strategy in Northeast B.C. currently focuses on the Daiber area’s drier gas. The CEO explained that they also have another plant they’re trying to put forward that will access a richer gas in a different location.

The strategy involves moving gas to the appropriate plants to serve the needs of the area producers.

“We’re looking at a liquids solutions takeaway solution as well; we’re looking at aggregating volumes and fractionating, and taking away a spec product,” said Cumming. “We need all of these things to come together to make everything work.”

Long-term, KANATA’s goal is to develop their two-core strategy.

“Each of those areas, we’d like to continue to expand,” said Cumming. “So right now in the Daiber, even though we haven’t finished building the first plant, we’re looking at an expansion there already. So all these areas could support a significant amount of infrastructure.”

The investors: “It’s a great combination, because we’ve got the Arc Financial guys that are really good on the upstream side and have had midstream companies they’ve sponsored before,” he said. “The teachers have a lot of capital and can invest further, and then we have Energy Spectrum, who know mid-stream inside and out.”

The team: "Some of the things we can do with this great team we have; our experience is excellent. We’ve seen a lot of this stuff, and we can better serve our customers’ needs,” explained Cumming.

“So with UGR, they approached us saying they needed a solution quickly to process this gas, and our engineering guys jumped on it right away, and within just a few weeks we had executed on trying to find the equipment and getting it in place.

“We’re going to have this plant up and running basically within 12 months. It is fast. It’s the way that we can do things. Customer service-wise, we’re ready to go. We really care about what we’re trying to do.”  

The target: “In our case, one of the areas is Northeast B.C. and the Montney. We really like the Montney in Alberta. We really like the Duvernay play in Alberta. Anything that has the capacity to really grow. We wanted to expand in these areas. All three of those are those kind of projects. The B.C. side of it was one of the first areas we looked at.”

The customers: UGR. And KANATA is talking with a lot of upstream producers, trying to open more doors.

Strategy: “Build infrastructure that fits a customer’s needs. Making sure that we serve them in the best way we can. When I was looking to start up KANATA, one of the things that bothered me that I noticed (in the industry) was a real lack of customer service. ... As a company we’re going to be concentrating in our core areas because we think that’s the best way to serve our customers. Find an area, try to build out of that area, and try to serve the needs, whatever they are, for our customers. …

“We want to get into the resource plays; we want to find areas they’re short on infrastructure and we want to find producers that want to work with us, build things out and grow with us. We want things that can be scalable.”

Why KANATA: “We’re all about service. That’s our edge. That’s how we’re going to be successful. We are all about serving our customers’ needs, and we do it in a transparent way. So there’s not a hidden agenda. We do it an open and transparent way so that they can see where we’re coming from, what we’re trying to accomplish to serve their needs.”

The competition: “Any of the mid-streamers, there’s AltaGas, and there’s more coming all the time. There’s no lack of competition. All the key guys are up here.”

In five years: “...we will hopefully have deployed a billion dollars in capital. One core area will be Northeastern B.C. One more core area (is) in Alberta.

After that: “What are the next steps? Are we a public company at that point in time? Do we IPO ourselves? Do we sell to somebody else, or do we find some backing that allows us to grow bigger than that? Those will be our choices at that time. It will be great to have those choices.”

What has to happen? “We need to get some producers to support some of the things we want to do, and we’re ready to go. We’re actively doing several engineering studies on our own just to move things along. When people are ready to make that investment decision, we want to be there for it. We’re trying to move ourselves in position where we can stay ahead of the game a bit and be ready to execute whenever a company decides they want to execute.”

“We are what I would call a very unique company. We have great experience, the ability to take on a substantial amount of risk; we have great backing that allows us to grow as we need to grow; and we have great, great people. We really look forward to working up here. There’s a lot of room for everybody to play in this area. We want to make our mark here and we think we can do an excellent job.”