As has been rumored for weeks, Encana Corp. agreed late Wednesday to sell a half-stake in its Cutbank Ridge assets in British Columbia and Alberta to a subsidiary of PetroChina International Ltd. for C$5.4 billion.
The Calgary-based company signed the cooperation agreement with PetroChina International Investment Co. Ltd. to establish the 50/50 joint venture to "ambitiously grow natural gas production" in the years ahead. The deal was rumored to be in the works last month (see Daily GPI, Jan. 18).
Encana CEO Randy Eresman said the agreement culminated nine months of discussions between the parties. More details are expected in the company's 4Q2010 conference call on Thursday, a spokesman said.
"By combining resources with PetroChina in this joint venture," said Eresman, "we would expect to recognize additional value through accelerating our pace of development and by leveraging increased capital and operating efficiencies through further technical advancements and through greater certainty of the long-term development plan for the business assets."
Early last year Encana officials unveiled a strategy to accelerate the value of their huge North American unconventional gas portfolio and said they would pursue partnerships. In the past several years the Calgary producer "has assembled a very large portfolio of some of the best natural gas resource plays in North America by focusing on high-quality resources and building the expertise to capture and develop them at some of the lowest costs in the industry," Eresman noted. Encana is the largest gas producer in Canada.
Using end-of-year 2010 numbers, the Cutbank Ridge joint venture (JV) would provide PetroChina with half of the production, proved reserves and land, which amounts to around 255 MMcfe/d, proved reserves of about 1.0 Tcfe and 635,000 net acres of land straddling British Columbia and Alberta borders. The planned JV infrastructure, on a 100% basis, includes about 700 MMcf/d of processing capacity, about 3,400 kilometers of pipelines and the Hythe natural gas storage facility. The portfolio includes most of Encana's Montney, Cadomin and other gas assets in the region.
Under terms of the agreement each company would contribute 50/50 to future development capital requirements. Encana initially would operate the JV and market the production. Once the transaction is completed, the JV would operate through a joint management agreement.
The transaction, with an effective date of Jan. 1, 2011, is subject to regulatory approval by Canadian and Chinese authorities, due diligence and various transaction agreements.
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