09/26/2012 02:20 EDT | Updated 11/26/2012 05:12 EST

SaskEnergy teams with drilling company to truck compressed natural gas to rigs

CALGARY - CanElson Drilling Inc. (TSX:CDI) and SaskEnergy, a Crown corporation of the Saskatchewan government, are teaming up to develop a high-capacity, compressed-gas transfer operation in Weyburn, Sask.

Under the agreement Wednesday, CanElson's CanGas subsidiary will work with SaskEnergy's Bayhurst Energy subsidiary on a plan to transport compressed natural gas by truck to drilling rigs in the field.

CanElson (TSX:CDI) said it will spend $9 million of its previously announced $20-million investment in CanGas to establish a fleet of 30 CNG delivery trailers and convert all of its 14 drill rigs in Saskatchewan to use both natural gas and diesel.

The Calgary-based drilling company said it expects the compressed gas station will be partially operational soon and fully operational next year.

The three-year agreement is projected to generate $2.3 million in revenue for SaskEnergy.

"With this agreement we can start rolling out our plan to substitute diesel fuel with clean and inexpensive natural gas in our own fleet of mobile drilling rigs in Saskatchewan," said Randy Hawkings, CanElson's president and CEO.

"We expect this agreement will serve as a regional model under which we can quickly expand our CNG road transport services business to supply drilling rig engines and other equipment in markets across North America."