EnCana plans split into separate oil, gas companies

By OGJ editors
HOUSTON, May 12 -- The board of Canadian oil and natural gas company EnCana Corp. has approved a proposal May 11 to split along distinct business lines—oil and gas—to create two Calgary-based energy firms.

The split will create a publicly traded, fully integrated oil company, with a working name of IntegratedOilCo (IOCo), which will focus on EnCana's Canadian oil sands assets and refinery interests in the US, underpinned by an established gas and oil production base in Alberta and Saskatchewan, the company said. IOCo assets, which will encompass EnCana's Integrated Oil Division and Canadian Plains Division, represent about one third of EnCana's current production and proved reserves. The permanent name of IOCo will be determined before the transaction closes.

The other company, with a working name of GasCo, will encompass EnCana's Canadian Foothills Division, USA Division, Offshore and International Division, and other midstream assets "to form a pure-play gas company aimed at growing existing high-potential resource plays in Canada and the US," the company said. GasCo will represent about two thirds of EnCana's current production and proved reserves. It is expected that GasCo will retain the EnCana Corp. moniker.

"This transaction is designed to enhance long-term value for EnCana shareholders by creating two highly sustainable, independent entities, each with an ability to pursue and achieve greater success by employing operational strategies best suited to its unique assets and business plans," the company said.

Based on the transaction's details, EnCana shareholders are to receive one share in each of IOCo and GasCo. The split is expected to be completed in early 2009.

IOCo's assets
IOCo's asset base will include EnCana's two producing upstream Alberta oil sands areas—Foster Creek and Christina Lake—and two refineries at Wood River, Ill., and Borger, Tex.

Upstream, construction is under way to increase production capacity more than 200% to an estimated average of about 110,000 net b/d of oil by 2012. Current production is about 30,000 net b/d.

In October 2006, EnCana announced it had entered into an agreement with ConocoPhillips to create an integrated oil business. At that time, independently determined best estimates of recoverable bitumen for Foster Creek and Christina Lake were disclosed at more than 6.5 billion bbl and more than 2.5 billion bbl for Borealis, which is not part of the joint venture with ConocoPhillips.

"As a result of today's announcement, the greater focus on the in-situ oil sands assets of IOCo and given that IOCo will have all of its upstream operations in Western Canada, it is anticipated that EnCana will be reviewing the need to report the in-situ resources and other assets to be held by IOCo under the standards required by Canadian securities regulatory authorities," the company said.

"Over the next decade, IOCo's target as part of the integrated oil sands joint venture with ConocoPhillips is to increase gross upstream bitumen production from Foster Creek and Christina Lake to 400,000 b/d (200,000 b/d net to IOCo) and downstream refining capacity to about 510,000 b/d (255,000 b/d net to IOCo)," the company said.

IOCo's well-established shallow-gas resource plays in Alberta "are capable of providing strong cash flow to help grow production from its high-quality oil sands resources," the company said.

IOCo's designated assets were producing about 100,000 b/d of oil and natural gas liquids and about 925 MMcfd of gas, while the refinery assets were processing about 225,000 b/d of net oil.

GasCo assets
Separately, GasCo is expected to become the second-largest gas producer in North America, the company said. The company will hold plays in key basins in Alberta, British Columbia, Wyoming, Colorado, Texas, Louisiana, and off Nova Scotia.

GasCo will hold the company's portfolio of gas resource plays: coalbed methane and Bighorn in Alberta, Cutbank Ridge and Greater Sierra in British Columbia, Jonah in Wyoming, Piceance in Colorado, and Fort Worth and East Texas in Texas.

In addition to these established plays, operating teams recently achieved some promising exploration results in a number of North American shale plays, such as Horn River in British Columbia and the Haynesville shale in Louisiana, plus the Mannville CBM play in central Alberta, the company said.

GasCo also will hold EnCana's remaining international interests and midstream assets. It will target a production growth rate of 7-9%/year, the company said.

EnCana, which has an enterprise value of about $75 billion, employs about 6,500 people, 500 of whom work in Calgary. The company was formed in 2002 by a merger between PanCanadian Energy Corp. and Alberta Energy Co.

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