Calgary-based EnCana Corp.'s decision to build its natural gas reserves in East Texas is unrelated to Alberta's decision to revise the oil and gas royalty regime, the CEO said last week (see related story). However, EnCana CEO Randy Eresman said the Deep Bossier acquisition may affect the company's spending plans and lead to possible divestitures in 2008.

"This was a normal strategic event in pursuit of our North American program," Eresman said of EnCana's decision to buy out partner Leor Exploration & Production LLC in the Amoruso Field in East Texas. "This transaction has nothing to do with EnCana's future plans in Alberta with respect to the new Alberta royalty regime."

Eresman's statement was preemptive; energy analysts had not yet begun to question him about the private transaction during a conference call to discuss the Amoruso deal. But Eresman likely knew it was coming. In late September, Eresman warned that EnCana might cut its substantial $1 billion exploration budget in Alberta in 2008 if a higher tax regime were implemented (see NGI, Oct. 1). In October, the province adopted a scaled-back version of the royalty regime panel's plan (see NGI, Oct. 29).

Eresman said EnCana is "still reviewing" the impact of the royalty plan on its capital spending program in 2008.

"The new royalty regime will increase EnCana's natural gas and oil royalties but the effect will not be felt evenly across all our projects," Eresman said. "High-risk exploration and development activity, particularly for projects that require a higher commodity price to be economic, will be challenged under the new regime."

The Deep Bossier acquisition means that EnCana will make a larger spending commitment in the United States next year, and the increased U.S. spending could affect the amount of money spent in other areas, including Canada.

"We're going to have a much harder look at our budget plans and see if there's anything we would do differently," Eresman said. Besides cutting exploration and production spending on its current projects, Eresman said EnCana may consider some asset sales. However, he declined to disclose which assets may be considered.

In related news, EnCana on Thursday designated Single Buoy Mooring Inc. of Switzerland as the provider and operator of the company's long-planned Deep Panuke mobile offshore production unit, which would be located offshore Halifax in Nova Scotia (see NGI, Oct. 29).

"The contract award...is a key step in the development of the Deep Panuke natural gas field," said EnCana's Dave Kopperson, vice president in Atlantic Canada.

The news deflated concerns by many energy analysts that EnCana would shelve the Deep Panuke project because of modest production forecasts. If the project proceeds on schedule, Deep Panuke could have enough gas flowing by 2010 to supply about three million homes a year, according to the company.

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