Encana, Mitsubishi form Cutbank Ridge shale gas partnership

Mitsubishi Corp. agreed to acquire a partnership with EnCana Corp. to develop Cutbank Ridge undeveloped lands in northeastern British Columbia. Terms call for Mitshbishi to invest $2.9 billion (Can.) for a 40% interest.

The partnership holds 409,000 net acres of Encana’s undeveloped Montney formation gas assets in the Cutbank Ridge play. Encana will operate the partnership and be the managing partner with 60% interest in the partnership.

Randy Eresman, Encana president and chief executive officer, said Encana began nearly a decade ago to assemble its land position in the Cutbank Ridge in the foothills of the Canadian Rockies.

Encana plans to continue advancing joint ventures both in the US and Canada, Eresman said during a Feb. 17 conference call, adding Encana maintained good operational results during 2011 even though natural gas prices declined and remain low.

“Despite an increased capital spending profile on these natural gas assets resulting from this transaction, Encana plans to more than offset the near-term impact on North American natural gas production oversupply by capital spending reductions elsewhere in its natural gas portfolio,” Eresman said.

Encana divested $2.1 billion in noncore assets last year and invested $515 million in liquids-rich assets. The company’s 2012 budget of $2.9 billion represents a 37% decrease from 2011 levels. The divestitures, acquisitions, and budget was reported in US dollars.

The 2012 spending plan is designed to minimize investment in dry gas and accelerate investment in oil and liquids-rich gas plays, executives said.

Cutbank Ridge logistics

The Mitsubishi-Encana venture is the latest in a series of partnerships in which international companies are joining Canadian companies on gas development projects. Last year, Encana and PetroChina International Investment Co. called off a proposed venture in Encana’s Cutbank Ridge assets in western Canada (OGJ Online, June 21, 2011).

The Mitsubishi-Encana transaction, which received an advanced ruling certificate from Canada’s Competition Bureau, is subject to customary closing conditions. Terms call for Mitsubishi to pay $1.45 billion (Can.) upon closing, expected by Feb. 29.

In addition, Mitsubishi will invest $1.45 billion in addition to its 40% of the partnership’s future investment for a commitment period expected to be about 5 years. The arrangement reduces Encana’s capital funding commitments to 30% of the total expected capital investment over that period.

Partnership assets include additional development potential in the Cadomin and Doig formations.

This transaction does not include any of Encana’s current Cutbank Ridge production of about 600 MMcfd, processing plants, gathering systems, or Encana’s Alberta holdings.

For 10 years, Encana has defined the potential of its Cutbank Ridge assets.

“This transaction represents the next step towards the long-term development and value recognition of our undeveloped Cutbank Ridge lands in British Columbia,” Eresman said.

Encana estimates the Cutbank Ridge Partnership’s lands have proved undeveloped reserves of 900 bcf of gas equivalent. The lands contain estimated natural gas initially in place of about 130 tcf.

Contact Paula Dittrick at paulad@ogjonline.com.

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