Encana Reaches $2.21B JV Deal with PetroChina

TORONTO - Just days after Canada clarified investment rules for foreign state-owned investors, one of the biggest and most active in the energy patch--PetroChina Co.--said it would pay 2.18 billion Canadian dollars ($2.21 billion) to buy into a natural-gas project with Calgary-based Encana Corp.

Encana said Thursday that it has reached a deal with Phoenix Duvernay Gas, a wholly owned subsidiary of PetroChina, to jointly develop Encana's Duvernay natural-gas-and-liquids play in west-central Alberta. The deal gives China's largest listed energy producer a 49.9% stake in the asset in exchange for an initial C$1.18 billion, with the remainder payable over the next four years.

A previous joint venture between Encana and PetroChina fell apart last year after the two sides couldn't agree on final terms. Encana had agreed to sell PetroChina a 50% stake in Cutbank Ridge, a large shale-gas project in western Canada, for $5.5 billion.

The latest deal is one of four major Chinese energy investments in Canada this year, with the largest acquisition Ltd.'s $15.1 billion acquisition of oil-sands operator Nexen Inc.--getting the Canadian government's nod less than a week ago.

In other deals, PetroChina bought the 40% stake it didn't already own in the MacKay River oil-sands project from Canadian partner Athabasca Oil Sands Corp. in January for C$680 million and it took a 20% stake in Royal Dutch Shell PLC's Groundbirch shale-gas property in British Columbia for C$1.304 billion in February.

For PetroChina, investments in Canada are part of a broader goal of expanding overseas production to account for half of its business by 2015. The state-controlled company produced 62.5 million barrels of oil equivalent in the first half of 2012, up less than 1% on year, accounting for 9.4% of its total output, according to its first-half earnings report.

Currently, there are limited outlets for transporting North American natural gas across the Pacific, but PetroChina, with Royal Dutch Shell PLC, is taking part in a plan to build a liquefied natural gas terminal in Kitimat, B.C. It is unclear whether this could serve as an outlet for Duvernay gas.

PetroChina, which is expected to release a statement on the Encana deal later today, wasn't able to immediately comment for this article.

On Saturday, at the same time as it announced its approval of the Cnooc-Nexen, Canada gave the green light to Malaysia's Petroliam Nasional Bhd. to acquire Progress Energy Resources Corp., a Canadian natural gas producer, for $5.2 billion.

Even as Canada approved those blockbuster deals, the government of Prime Minister Stephen Harper also said the country would dramatically increase scrutiny on other investments proposed by state-owned entities. Mr. Harper said Canada would all but rule out foreign government-controlled investors from buying a majority stake in any oil-sands operator and that the government would beef up any reviews of other deals in other sectors.

The PetroChina deal now stands as an early test of what that new scrutiny will look like.

Encana said the joint-venture assets contain an estimated nine billion barrels of oil equivalent. The companies plan to invest C$4.0 billion in new drilling, completion and processing facilities, it said.

Encana, a gas-focused company, has been stung by a sharp fall in natural gas prices across North America. The company has embarked on an aggressive bid to draw in joint venture partners and shed assets.

"Phoenix's investment demonstrates the tremendous value that Encana has created in this early life liquids rich play," said Encana Chief Executive Randy Eresman, "and enables us to accelerate the pace at which the full production potential of our Duvernay lands can be achieved."

Wayne Ma in Beijing contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.


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