Encana, Petrochina Call Off $5.43B Canadian Shale Deal

Encana and PetroChina have ended negotiations for a proposed joint venture concerning Encana's Cutbank Ridge business assets after the parties were unable to achieve substantial alignment with respect to key elements of the proposed transaction, including the joint operating agreement.

"After close to a year of exclusive negotiations with PetroChina, we were unable to reach alignment on the planned transaction. The disciplined and determined process we undertook on this one initiative in our multi-faceted and ongoing joint-venture strategy has gone a long way to demonstrate the tremendous value that we have created at Cutbank Ridge and it validates our plans to accelerate recognition of that value. As such, we have determined that the best way for us to advance our plans to unlock value from our Cutbank Ridge business assets is to offer up a variety of joint venture opportunities for portions of the undeveloped resources, and, separately, to examine a transaction with respect to our midstream pipeline and processing assets in the area. Each of these opportunities has the potential for strong long-term growth and value generation. We have an accomplished history of realizing significant value from our enormous resource potential through competitive processes that secure premium joint venture partners. We have retained RBC Capital Markets and Jefferies & Company, Inc. to conduct this process and we look forward to discussing these very attractive opportunities with an array of potential investors in the upcoming months," said Randy Eresman, Encana's President & Chief Executive Officer.

Horn River and Greater Sierra joint venture discussions well underway

In April 2011, Encana announced plans seeking investors in two joint ventures on Encana assets outside Cutbank Ridge in northeast British Columbia, one on undeveloped Horn River shale lands and one in the company's Greater Sierra resource play. Discussions are well underway on these potential transactions as well as a potential divestiture of producing assets in the northern portion of Greater Sierra. Encana expects that these transactions, plus other divestitures and joint venture pursuits that the company has initiated, will generate 2011 proceeds and joint venture investments of between US $1 billion and $2 billion, a level that exceeds Encana's net divestiture target for 2011 of $500 million to $1 billion. That estimate for higher 2011 divestiture and joint venture proceeds does not include any potential investments in Encana's Cutbank Ridge undeveloped resources and associated midstream assets. To reflect this increase, Encana has updated its 2011 guidance for net divestitures to between $1 billion and $2 billion. All other components of Encana's guidance remain unchanged.

Encana on track for 2011

"As we look ahead to the rest of this year, our strong operating performance in the first half of this year and our prudent risk management measures mean that we remain on track to achieve our 2011 production and financial guidance. We expect future natural gas prices to reflect the forward price curve, and, over time, to return to a long-term level of about $6 per thousand cubic feet (Mcf), which we believe reflects the cost of adding new supply. Across Encana, we are relentlessly focused on driving down supply costs, which this year we expect to average about $3.70 per Mcf. Over the next three to five years, we are targeting a supply cost of $3 per Mcf, based on 2011 cost structures. These low cost structures, combined with our continued emphasis on capital discipline and the high grading of our portfolio, help us maximize margins and maintain a healthy balance sheet through the lower end of the price cycle - a market condition that has persisted in North America during the past two years," Eresman said.


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