Marking one of the final steps in its effort to exit operations that detract from its core focus on unconventional natural gas and oil resources in North America, EnCana Corp. said Tuesday it is selling its shares in subsidiaries that have oil and pipeline interests in Ecuador to Andes Petroleum Co., a joint venture of Chinese petroleum companies, for US$1.42 billion in cash.
The sale, which is expected to close before the end of the year, is subject to approval by the government of Ecuador and some other regulatory conditions.
This "is also about concentrating our efforts and investment where we have clear competitive advantage," said CEO Gwyn Morgan. "Since EnCana was formed in early 2002, we have reached agreements to divest more than $10 billion in noncore assets." In the meantime, it has been growing its North American unconventional resources by about 25% a year over the last three years.
Its gas production has doubled in the past three years, and in the next five years about 75% of its output in continuing operations will come from unconventional resources. With thousands of acres of unconventional natural gas plays across the United States and Western Canada, EnCana Corp. expects to book about 19 Tcf in proved reserves over the next five years, Morgan said in June.
The net book value of EnCana's investment in Ecuador is $1.4 billion. Proceeds from the sale are expected to be directed to debt reduction and the continuation of EnCana's share purchase program.
The Ecuador interests include the following: a 100% stake in the Tarapoa Block, which has production of about 38,000 bbl/d of oil; a 40% nonoperated economic interest in relation to Block 15, with production or 30,000 bbl/d; interests in Block 14 (75%), Block 17 (70%) and Shiripuno Block (100%) with production of about 7,200 bbl/d; proved reserves totaling 143 million bbl; and a 36.3% interest in the 310-mile OCP Pipeline, which has capacity to transport 450,000 bbl/d.
EnCana said it is continuing with the previously announced divestiture of its natural gas liquids business and its gas storage assets in North America. Both divestitures are expected to be completed over the next six months.
The storage assets include 174 Bcf of capacity at five facilities in Alberta (AECO-C Hub), California (Wild Goose) and Oklahoma (Starks). The divestiture is expected to take place through a competitive auction or an initial public offering (IPO), which is expected to be completed early next year (see Daily GPI, June 21).
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