Progress Energy CFO Art MacNichol eyes Asian growth
'Increased opportunities bring increased risks'
On August 2, 2011, Progress Energy Resources Corp. pulled off a coup. And Art MacNichol, the firm’s senior vice-president of finance and chief financial officer, was in the middle of it. On that day, the Calgary-based firm, with a large stake in the Montney tight gas play in northeastern British Columbia, inked a $1.07 billion dollar deal with Malaysia’s Petronas.
The deal gave the state-owned Southeast Asian company a stake in Progress Energy’s Montney assets. Progress Energy got something valuable as well – a partner with deep pockets to help it develop B.C. tight gas and tap a growing liquefied natural gas (LNG) market. “There was no precedent for a company our size successfully executing a joint venture of this scale,” MacNichol says. “From idea to closing, it took a year to execute.”
The recipient of the 2011 C-Suite award for top chief financial officer, MacNichol finds himself as one of the financial foot soldiers in a sector-wide push to build energy infrastructure designed to free Canada from its dependence on one market – the United States.
The Progress Energy-Petronas partnership is part of this export story. The joint venture has designs on building a LNG export terminal on B.C.’s West Coast. It’s one of five projects in various stages of development seeking to ship the supercooled fossil fuel to Pacific Rim markets, where it can fetch as much as US$15 per thousand cubic feet in locales like Japan and South Korea.
Such a project, if it happens, would vault Progress Energy into the export big leagues. The majority of the companies pushing B.C. LNG export schemes are large outfits like Shell Canada, Apache Canada and EnCana Corp. Progress Energy is a mid-cap, which produced an average of 42,900 barrels of oil equivalent (boe) per day in the third quarter of 2011. However, the company has grown steadily since it was formed as a tiny junior in 2001, producing approximately 2,000 boe per day. And it has plans to get much bigger, reaching 100,000 boe of production by 2015.
Since 2004, the 49-year-old has been the man overseeing the company’s coffers. A 25-year veteran of the oil patch, the University of Alberta commerce graduate (class of 1985) got his start with Husky Oil as a financial accountant. It was at Husky where he got a lesson on the boom and bust nature of the petroleum business. “Not quite a year after I started at Husky, crude oil prices crashed and the company laid off a third of its staff. In the previous month, the company had realized the highest cash flow in its history. This was a real eye-opener for me on how the energy business was affected by world events and how fast a company, its employees, and a community could be turned upside down.”
The firm has done what it can to buffer itself from the so-called black swan and tail risk events that can sink world markets and change the fortunes of a commodity-driven business. MacNichol’s financial acumen has been put to use frequently at Progress Energy. He was a key cog in the team that oversaw the firm converting from an energy trust into a corporation and growing the asset base through the drill bit, as well as making acquisitions amid persistently weak natural gas prices and turbulent financial markets.
But the Petronas deal was the kicker. The partnership will see the companies develop Progress’ Montney tight gas assets: the Altares, Lily, and Kahta areas located in the Foothills of northeast B.C. The deal was a complex one to pull off. Petronas paid 25 per cent of the total consideration, $267.5 million in cash at closing and the state-owned firm will pay 75 per cent of Progress’ share of future capital expenditures in the joint venture over the next five years to a total of $802.5 million. This will allow Petronas to earn a 50 per cent interest in the joint venture lands. The two partners also established an LNG export partnership, which will be 80 per cent owned by the Malaysian firm and 20 per cent owned by Progress Energy.
The company is making a risky bet on the Montney and LNG. Concerns about the environmental impact of large scale horizontal drilling and hydraulic fracturing, particularly around water, could ultimately slow the rush to tap B.C.’s abundant unconventional gas resources. However, in a recent report on supply and demand projections issued by the National Energy Board, it forecasts natural gas production from the Montney growing from 857 million cubic feet per day in 2011 to 5.1 billion cubic feet per day by 2035.
That’s the kind of growth Progress Energy is looking for. And if it happens it will undoubtedly lead to more number-crunching and more responsibility for MacNichol. But he seems to relish the thought of it. “It is a very exciting phase. But increased opportunities bring increased risks. My role will include a heightened focus towards risk mitigation, not an easy task in today’s tumultuous financial climate,” he says. “But I’m looking forward to watching the strategic partnership with Petronas unfold and on taking Progress to the next level.”