ALBERTA

Encana, PetroChina Form Partnership To Develop Natural Gas In Alberta

12/13/2012 12:32 EST | Updated 02/12/2013 05:12 EST
Getty Images
YANAN, CHINA: A PetroChina attendant pumps gas into a truck at a station on the outskirts of Yanan, 27 May 2005, in China's western Shaanxi province. PetroChina said 10 June 2005 it will acquire a series of assets from its state-owned parent for 20.74 billion yuan (2.5 billion USD) as part of a quest to become more internationalized. China's largest oil company said on its website it would form with its parent, China National Petroleum Corp., a new 50-50 joint venture which would hold these assets. AFP PHOTO/Frederic J. BROWN (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)
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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