Colorado-based natural gas developer Escalera Resources Co. has entered into a letter agreement with Wyoming GTL (WYGTL) (based in Reno, Nevada) jointly to initiate the development, construction and operations of a gas-to-liquids (GTL) plant to be located in Cheyenne, Wyoming. The two will jointly own Escalera GTL, LLC (EGTL), through which the initial phase of the GTL Plant will be executed.
Escalera Resources has an 87.6% working interest in the Catalina unit, a natural gas CBM (coalbed methane) field in southwestern Wyoming.
Under the Letter Agreement, WYGTL will assign all development and engineering plans, contracts, rights, technical relationships, among other rights to EGTL, and the company will fund up to $2 million to EGTL, subject to Board approval. These funds will be used for feasibility studies and completion of the initial engineering and development plans for the GTL Plant.
The Letter Agreement will terminate within 180 days (or on November 26, 2014) if a definitive agreement between Escalera and WYGTL has not been completed. In the event a definitive agreement is not executed within the required period, WYGTL will reimburse Escalera for any portion of the $2 million funded to EGTL, and EGTL will assign all Rights to WYGTL. Under the Letter Agreement, WYGTL will own 90% of EGTL, with Escalera owning the remaining 10%.
For its participation in EGTL, Escalera has the right to supply up to 75% of the natural gas feedstock for the GTL plant once it is operational. Based on WYGTL’s plans for the GTL plant, the estimated amount of gas to be supplied by Escalera would be up to approximately 35-38 Bcf annually. Additionally, Escalera will participate in the net margin generated from the conversion of the gas it supplies to the GTL plant in return for entering into a long-term gas supply contract.
Escalera intends to provide the natural gas supply to the GTL plant from its current producing properties, and the future acquisition and development of producing properties.
The Letter Agreement also provides for initial ownership percentages for Escalera and WYGTL for any other future GTL plants to be developed and constructed by EGTL. Escalera’s initial ownership percentage in any other future GTL plants will vary based on its involvement in initiating such project and will range between 5% and 55%. The Company will have the right to supply up to 75% of the natural gas feedstock for all future plants and will participate in the net margin generated from the conversion of its supplied natural gas feedstock.