Mitsubishi, Penn West to Develop BC Shale Assets

Mitsubishi has entered into an agreement in connection with investing in a natural gas development project centered on shale gas in the Cordova Embayment of northeastern British Columbia, Canada. The project is owned by Penn West Energy Trust (PWE). The Agreement shall become effective following approval by MC's Board of Directors at a meeting scheduled for mid-September and approval for the acquisition from the Canadian Federal Government, etc.

After the Agreement coming into effect, Cordova Gas Resources Ltd., a subsidiary established by MC in Calgary, will acquire a 50% interest in shale gas assets, conventional natural gas assets and related natural gas facilities in several sections owned by PWE. An unincorporated joint venture (JV) to be formed with PWE will actively develop and produce natural gas.

PWE is a promising partner with a significant position in the Cordova Embayment, which boasts a high quality shale gas resource comparable to the top tier shale gas resources in North America. PWE has been conducting initial drilling operations since 2006 and, based upon third party evaluations, Mitsubishi believes that the shale gas resources in this project are approximately 5~8 trillion cubic feet (MC estimate, over 100~160 million tons in LNG equivalents). The potential of this enormous resource could greatly exceed Japan's natural gas annual demand.

Effect of the Agreement will serve as a fillip for development of shale gas in these sections, where the current plans of the JV are to lift current output of approximately 30 million cubic feet per day to approximately 500 million cubic feet per day (approximately 3.5 million tons of LNG equivalents per year) based upon current and anticipated economic, regulatory and market conditions. MCs equity share of production will be 50%. MC will promote development and production in this region for over the next 50 years together with PWE and market natural gas of MC's equity share of production in the North American market, partly through CIMA Energy Ltd., a U.S.-based gas marketing company in which MC has a 34% equity interest.

MC's total acquisition cost will be approximately CAD$450 million (approximately ¥36.2 billion). In addition to approximately CAD$250 million (approximately ¥20.1 billion) as consideration for the purchase of 50% of existing assets, MC will fund an additional approximately CAD$200 million (approximately ¥16.1 billion) of the future exploration and development capital expenditures to be born by PWE. Going forward, this project will drill more than hundreds to 1,000 wells for coming 15 years. The cost of MCs contribution to this period is approximately estimated at ¥300 billion. Subsequent development plan and project cost will be sequentially examined.


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