(ECA) EnCana and PetroChina End Joint Venture

Canada’s largest natural gas producer EnCana Corp. (ECA) has confirmed that it has pulled out of talks with Chinese energy giant PetroChina Co. Ltd. (PTR) regarding the sale of half of its prolific Cutbank Ridge shale natural gas assets in British Columbia and Alberta for approximately C$5.4 billion (U.S.$5.4 billion).

In an announcement, the company revealed that it has ended discussions with PetroChina without reaching an agreement on key aspects of the deal. The potential transaction, which was signed in February after nine months of negotiations, was expected to close in the middle of this year.

The deal – the largest energy investment China would have made in Canadian assets – was to see the state-controlled PetroChina acquire a 50% interest in EnCana’s Cutbank Ridge properties, representing current production of 255 million cubic feet of gas per day, with proved reserves of one trillion cubic feet over 635,000 net acres.

Additionally, the joint-venture was scheduled to include 700 million cubic feet per day of processing capacity, about 3,400 kilometers of pipeline and the Hythe natural gas storage facility.

Per the terms of the pact, EnCana was slated to receive the full consideration upfront, with both companies equally sharing future development capital requirements and operating responsibilities.

The co-operation with PetroChina was part of EnCana’s previously laid out plans to strike joint venture deals between $1 billion and $2-billion each year over the next five years. EnCana would also have been able to accelerate output while containing development expenditures at one of its core properties, thereby coping with the weak North American natural gas environment.

We believe EnCana’s inability to secure the deal will act as a setback for the natural gas supplier, as the proceeds were supposed to help support its balance sheet, fund an ambitious capital expenditure program and pay down debt.

Following the breakdown in talks with PetroChina, EnCana is now on the lookout to secure other joint venture partners for both its Cutbank Ridge assets, as well as other shale natural gas resources in that region of British Columbia.

Based in Calgary, Alberta, EnCana is a focused pure-play natural gas exploration and production (E&P) company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region’s most promising shale and tight gas resource plays.

EnCana shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

ENCANA CORP (ECA): Free Stock Analysis Report

PETROCHINA ADR (PTR): Free Stock Analysis Report

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