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EnCana Selling Storage Business to Concentrate on North America Upstream

EnCana Corp., which at one time indicated that it wanted to become a leading North American natural gas storage operator, said last week that following a "strategic review" by the board of directors, it will sell nearly all of its gas storage business -- 174 Bcf of capacity at five facilities in Alberta, California and Oklahoma -- through a competitive auction or an initial public offering (IPO).

EnCana is one of the leading gas storage operators in North America, but the company said that it is a "relatively small part" of the company and is not considered crucial to the success of the its upstream North American operations.

EnCana Gas Storage's AECO Hub in Alberta is comprised of three facilities totaling 135 Bcf of storage capacity. Wild Goose Gas Storage Inc. in Northern California has 24 Bcf, and Salt Plains Gas Storage Inc. in Oklahoma has 15 Bcf of storage capacity. EnCana also is developing Starks Gas Storage LLC in southwest Louisiana.

According to the announcement last week, the producer will retain ownership of the Hythe storage facility in northwest Alberta, which has 10 Bcf feet of storage capacity. It also said that it could enter into other commercial storage arrangements with the new owner of the divested assets. All of the sales are expected to be completed by early 2006.

"Since commencing operations at Suffield in 1988, EnCana's gas storage has been a strong performer for the company," said CEO Gwyn Morgan. "However, as EnCana continues to sharpen its focus on the exploration and development of its North American gas and oil resource plays, we have decided that EnCana may realize the best value from gas storage through a possible divestiture or an initial public offering."

EnCana's decision to shed its gas storage assets alters a course it set less than three years ago, when management made a decision to grow the business because of what it said was a lack of overall storage capacity in North America.

In 2003, EnCana significantly expanded its storage network, building 10 Bcf of new capacity at Countess, one of the three AECO Hub facilities. Full development was expected to take the Countess capacity to 40 Bcf this year, with an expected withdrawal of 1.2 Bcf/d. It also completed the Wild Goose facility last year, which doubled that facility's withdrawal capacity.

The new Starks salt dome in southwest Louisiana, announced in late 2003, calls for about 8.6 Bcf of working gas capacity, 375 MMcf/d of injection and 400 MMcf/d of withdrawal capability (see NGI, Oct. 13, 2003).

As late as last October, EnCana told the Federal Energy Regulatory Commission that it should adopt policies to encourage more storage development (see NGI, Oct. 25, 2004). It said then that high price differentials between injection and withdrawal season months showed that the gas market was demanding even more storage capacity be added to the marketplace, and said there were indications that storage capacity could be inadequate to handle a colder than normal winter.

However, EnCana noted that in the past year, it has been upgrading its portfolio to focus on unconventional gas and oil resource plays across North America. The company said that the planned sale or IPO of the storage business would be consistent with its recent asset divestitures in the North Sea, the Gulf of Mexico and Western Canada, its planned sale of Ecuador interests, and the sale of its natural gas liquids business.

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