Encana Corp., which said Wednesday it remains on track to “meet or exceed” a plan to sell $1-2 billion in assets by the end of this year, agreed Wednesday to divest a portion of its Colorado midstream properties in the Piceance Basin to an undisclosed buyer for $590 million.

The properties, to be sold by subsidiary Encana Oil & Gas (USA) Inc., were built in the last decade to serve the producer’s Mamm Creek, Orchard and South Parachute output in the area near Rifle, CO. The midstream units gather and transport about 500 MMcf/d and include about 260 miles of pipeline and 90,000 hp of compression facilities.

The latest sale is no surprise as Encana, one of the largest natural gas producers in North America, adjusts to a lower commodity price environment. The company has several midstream properties on the market; early this year the U.S. subsidiary sold the Fort Lupton, CO midstream properties to Western Gas Partners LP for $303.3 million (see Daily GPI, Jan. 19).

“Following our Fort Lupton gas plant divestiture earlier this year, this Piceance divestiture represents our second successful step in capturing significant unrecognized value from our midstream assets,” said Encana’s Renee Zemljak, who is executive vice president Midstream, Marketing & Fundamentals. “We have a strong track record of leading the construction of midstream facilities, which gives us the competitive advantage of being a first mover in the development of natural gas resource plays.

“Once built and operating, the assets may be sold to premium midstream operators, freeing up capital for Encana to redeploy investment into its core business of growing natural gas and liquids production.”

Encana previously announced that it would sell its Barnett Shale stake in North Texas, portions of the Jean Marie in northeast British Columbia and the Carrot Creek assets in Alberta’s deep basin. The Calgary-based producer also has restarted a process to secure a joint venture partner for the Cutbank Ridge undeveloped assets in Canada after ending talks in June with a subsidiary of PetroChina International Ltd. (see Daily GPI, June 22).

The Fort Lupton sale is expected to be completed by the end of this year. Midstream property stakes also drawing “considerable interest from prospective purchasers” include the Cabin Gas Plant in the Horn River Basin and the Cutbank Ridge assets in Alberta, Zemljak said.

“Once we have completed the Piceance midstream asset sale, our 2011 net divestitures will stand at about $600 million,” said CEO Randy Eresman. “Total divestitures proceeds of about $1 billion are offset by about $400 million of acquisitions.

“Encana has initiated a number of divestiture and joint venture processes to ensure it meets its objective of $1 billion to $2 billion of net divestitures by around year-end. The current highly competitive midstream environment is resulting in significant interest in our Canadian midstream assets. Due to the strong interest that we have received, we are optimistic that one or more Canadian midstream divestitures will also be forthcoming by around year-end.”

The North American oil and gas landscape has changed significantly, he noted.

“Natural gas has gone from being in short supply to being abundant, and the highly successful development techniques that enabled the cost-effective development of prolific unconventional natural gas reservoirs are now successfully being deployed in certain oil and liquids-rich natural gas reservoirs as well. Natural gas prices have continued to remain low, whereas prices for oil and natural gas liquids have improved substantially.”

In the past two years Encana’s investments have “outpaced” cash flow, mostly because of the company’s deliberate initiatives to assemble positions in many promising oil and liquids-rich plays, as well as to expand the market for North American natural gas, said Eresman.

“Despite persistently low North American natural gas prices, we have been achieving some of our best operational performance ever,” said the CEO. “We have continued to make technological and efficiency advancements that have lowered our overall cost structures — initiatives that help us maintain profitable operations even in a New York Mercantile Exchange natural gas price environment of $4/Mcf.”

Encana has about half of its expected daily natural gas production hedged from now through the end of 2012 at prices averaging more than $5.75/Mcf, he noted.

Even though “there are clearly a number of moving parts which have the potential to strengthen the company’s balance sheet, at this time Encana is taking a conservative view to commodity pricing and is developing a capital investment plan accordingly” for 2012, said the CEO. “The company’s preliminary approach for next year is to have capital investment plus dividends be approximately equal to its expected cash flow generation, which does not include divestiture proceeds. If divestiture proceeds exceed the company’s planned 2011 target of $1 billion to $2 billion, additional financial flexibility will result.”

Expect to see more refinement and optimization of its North American hub developments as the company targets “continued reductions in supply costs towards a goal of $3/Mcfe for all of its drier natural gas plays,” said Eresman. “Within the 2012 budget, it is expected that many of Encana’s drier natural gas plays will see a somewhat reduced capital program, while a growing portion of next year’s capital investment will be directed towards the company’s extensive oil and liquids-rich development and exploration opportunities.”

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