Encana, PetroChina form partnership on nat gas in Alberta

CALGARY – Encana Corp. and PetroChina have reached a deal to work together in a promising Alberta shale natural gas formation, with the state-owned Chinese company agreeing to pay $2.18 billion for just shy of a half-stake in the joint venture.

The two companies have a history: an earlier $5.4-billion joint-venture deal for Encana’s lands in the Montney region fell apart in mid-2011 after they failed to see eye-to-eye on how that project would operate.

The deal announced Thursday gives Pheonix Duvernay Gas, a subsidiary of PetroChina, a 49.9 per cent interest in about 180,000 hectares Encana has in the nascent Duvernay formation in west-central Alberta, which is rich in valuable natural gas liquids.

Encana estimates there are nine billion oil-equivalent barrels initially in place on its lands.

“Phoenix’s investment demonstrates the tremendous value that Encana has created in this early-life, liquids-rich play and enables us to accelerate the pace at which the full production potential of our Duvernay lands can be achieved,” Encana CEO Randy Eresman said in a release.

“A transaction of this magnitude keeps us on track to create a more diversified commodity portfolio and maintain our balance sheet strength. It is a strong endorsement of Encana’s position as a reliable long-term partner.”

Encana will remain the operator of the Duvernay joint venture, which will see the partners together spend $4 billion on drilling, completion and processing facilities over the next four years.

PetroChina has already paid $1.18 billion to Encana, with the remainder being stretched over the next four years to carry half of Encana’s share of development capital.

“This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio,” said Pheonix CEO Zhiming Li.

“Encana is our ideal long-term partner for the development of our future natural gas business.”

Last week Ottawa approved another Chinese company’s $15.1-billion takeover of Calgary-based Nexen Inc., but said future acquisitions of oilsands producers by state-owned companies would only be allowed under exceptional circumstances.

Because PetroChina is taking a minority interest in the Duvernay lands, it won’t be subject to the same federal review the Nexen deal was.

Encana has been inking several joint venture deals in recent years so that it can develop its huge resource base more quickly than would otherwise be the case.

Encana shares rose 22 cents to $20.66 in Thursday afternoon trading on the Toronto Stock Exchange.