CALGARY - Less than a week after Ottawa waved through CNOOC Ltd.'s $15.1-billion takeover of Nexen Inc., a different Chinese state-owned company is plowing another $2.2 billion into the Canadian oilpatch.
Natural gas giant Encana Corp. (TSX:ECA) and PetroChina subsidiary Phoenix Duvernay Gas announced Thursday they have reached a deal to work together in the Duvernay, a promising shale natural gas formation in west-central Alberta.
Phoenix will end up owning just shy of half of the 180,000 hectares Encana has in the Duvernay, which means the deal won't be subject to the same federal review as the Nexen deal.
In announcing the Nexen (TSX:NXY) decision — as well as a green light for Malaysian state-owned firm Petronas' takeover of natural gas producer Progress Energy Resources Corp. (TSX:PRQ) — Prime Minister Stephen Harper stressed that those types of deals would not be the norm.
"I think Prime Minister Harper was clear that Canadian was still welcoming foreign investment," said Geoff Hill, a partner at Deloitte's Calgary officer.
"Where he was also clear was that control and complete ownership, especially by state-owned enterprises, would be much more difficult."
Encana estimates there are nine billion oil-equivalent barrels initially in place on its Duvernay lands, which are rich in valuable natural gas liquids. It will remain operator of the project.
"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.
Barry Munro, Canadian oil and gas leader with Ernst & Young, says PetroChina's investment "validates that this Duvernay play, while it's at its early stages, would certainly look like it's a material natural gas play, because people are voting with their money."
PetroChina has already paid $1.18 billion to Encana, with the remainder being stretched over the next four years. The two companies plan to invest about $4 billion in the project over that time.
"This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio," said Phoenix CEO Zhiming Li.
"Encana is our ideal long-term partner for the development of our future natural gas business."
Encana and PetroChina 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 company has made inking joint ventures a major part of its strategy, especially in a persistently low natural gas price environment.
"Generally I think it's a positive way to develop the Canadian industry. It gives us access to significant pools of capital with a long-term view," said Munro.
"From an Encana shareholder perspective, I think it allows the company to develop its significant asset base, perhaps at a pace more quickly than it ever would do with its own financial resources."
Encana shares rose two per cent, or 41 cents, to close at $20.85 Thursday on the Toronto Stock Exchange.
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Nexen is a global oil and gas company that produced 207,000 barrels of oil equivalent per day at the end of 2011. In this April 25, 2012 photo, Nexen chief executive Kevin Reinhart addresses the company's annual meeting in Calgary. <em>With files from The Canadian Press</em>
Areas Of Operation
Only about 30 per cent of Nexen's production comes from its Canadian operations, with the rest coming from offshore platforms in the North Sea, Gulf of Mexico and West Africa.
CNOOC Ltd. is China's largest offshore oil and gas producer and is one of the largest oil and gas exploration and production companies in the world. At the end of 2011, it had 909,000 barrels of oil equivalent per day of production. Its Beijing-based parent, China National Offshore Oil Co., operates directly under the State-owned Assets Supervision and Administration Commission of the State Council of the People's Republic of China. CNOOC Ltd. shares trade on Hong Kong and New York stock exchanges.
On July 23, Nexen announced it had accepted CNOOC Ltd.'s all-cash offer of $27.50 per share, worth $15.1 billion. In a circular to shareholders a month later, Nexen revealed it had rejected two earlier CNOOC offers as too low.
61 per cent over Nexen's closing share price on the trading day before the deal.
CNOOC and Nexen had a relationship well before they announced their deal. In 2011, CNOOC acquired Opti Canada Inc., Nexen's beleaguered partner in the Long Lake oilsands project and the two have been working together on that project since. Later in 2011, CNOOC and Nexen formed a joint venture in the Gulf of Mexico. Around the same time, Nexen also agreed to sell a 40 per cent interest in some of its northeastern B.C. shale natural gas lands to a Japanese-led consortium.
Progress Energy Resources Corp. (TSX:PRQ) is a mid-sized natural gas producer with daily production of about 50,000 barrels of oil equivalent per day.
Areas Of Operation
Progress is the largest landholder in the Montney shale in northwestern Alberta and northeastern B.C. It is also active in Alberta's Deep Basin.
Petroliam Nasional Bhd, or Petronas, is wholly owned by the government of Malaysia. It has assets and interests in more than 30 countries and is heavily involved in the liquefied natural gas, or LNG, business.
Progress announced in late June it had agreed to Petronas' $20.45-per-share takeover offer. A month later, the Malaysian state-owned company sweetened its offer to $22 per share in order to trump a rival bid, bringing the deal's total value to $6 billion.
The sweetened offer is worth double what Progress shares traded at the day before the initial takeover deal was announced.
In mid-2011, Progress and Petronas formed a 50-50 partnership to jointly develop the some of the Canadian company's land in the north Montney. The two companies are also partnering on a liquefied natural gas terminal near Prince Rupert, B.C., that will be 60 per cent bigger if the takeover deal