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 a subsidiary of PetroChina announced Thursday they have reached a deal to work together in the Duvernay, a promising shale natural gas formation in west-central Alberta.
PetroChina 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.
“A transaction of this magnitude keeps us on track to create a more diversified commodity portfolio and maintain our balance sheet strength. It is a strong endorsement of Encana’s position as a reliable long-term partner.”
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 Pheonix 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.
Encana has been inking several joint venture deals in recent years so that it can develop its huge resource base more quickly than would otherwise be the case.
The cash injection from deep-pocketed partners has helped Encana cope with persistently low natural gas prices.
Encana shares rose 2.3 per cent, or 47 cents, to $20.91 in Thursday afternoon trading on the Toronto Stock Exchange.