Canada’s largest natural gas producer EnCana Corp. (ECA) has entered into a partnership with Chinese energy giant PetroChina Co. Ltd. (PTR) to sell half of its prolific Cutbank Ridge shale natural gas assets in British Columbia and Alberta for approximately C$5.4 billion (U.S.$5.4 billion).
The transaction, which has been signed after nine months of negotiations and still requires Canadian and Chinese government approvals, is expected to close in the middle of this year.
The deal – the largest energy investment China has made in Canadian assets – will see the state-controlled PetroChina acquire a 50% interest in EnCana’s Cutbank Ridge properties, representing current production of 255 million cubic feet of gas per day, with proved reserves of one trillion cubic feet over 635,000 net acres.
Additionally, the joint-venture will include 700 million cubic feet per day of processing capacity, about 3,400 kilometers of pipeline and the Hythe natural gas storage facility.
Per the terms of the pact, EnCana is slated to receive the full consideration upfront, with both companies equally sharing future development capital requirements and operating responsibilities.
The co-operation with PetroChina is part of EnCana’s previously laid out plans to strike joint venture deals between $1 billion and $2-billion each year over the next five years. EnCana will also be able to accelerate output while containing development expenditures at one of its core properties, thereby coping with the weak North American natural gas environment.
Based in Calgary, Alberta, EnCana is a focused pure-play natural gas exploration and production (E&P) company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region’s most promising shale and tight gas resource plays.
EnCana shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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