Encana, PetroChina enter into exploration deal

Encana Corp. and a subsidiary of China’s state-owned PetroChina have entered into a multibillion dollar joint venture agreement to explore and develop shale natural gas in Alberta, the Canadian oil and gas company said Thursday.

Encana said the PetroChina subsidiary, Phoenix Duvernay Gas, will invest $2.21 billion for a 49.9 percent interest in about 445,000 acres (180,000 hectares) Encana has in the emerging Duvernay formation.

Encana will remain the operator of the Duvernay joint venture, which will see the partners together spend $4.06 billion on drilling, completion and processing facilities over the next four years.

Encana estimates that the Duvernay joint venture lands contain about 9 billion barrels of oil equivalent petroleum.

“Phoenix’s investment demonstrates the tremendous value that Encana has created … and enables us to accelerate the pace at which the full production potential of our Duvernay lands can be achieved,” Encana president and CEO Randy Eresman said in a statement Thursday.

PetroChina has already paid $1.20 billion to Encana, with the remainder being stretched over the next four years to carry half of Encana’s share of development capital.

“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.”

Last week, Canada approved Chinese state-owned CNOOC’s $15.3 billion takeover of Calgary-based Nexen Inc., but said future takeovers in the oil sands sector by foreign state-owned companies will only be allowed under exceptional circumstances from now on. Once finalized, it will be China’s largest overseas energy acquisition.

Because PetroChina is taking a minority interest in the Duvernay lands, it won’t be subject to the same federal review the Nexen deal was.

Encana has been inking several joint venture deals in recent years so that it can develop its huge resource base more quickly.

Encana shares rose 22 cents to $20.66 in Thursday afternoon trading on the Toronto Stock Exchange.

Encana and PetroChina began working on another natural gas joint venture in 2010— a $5.48 billion joint-venture deal for Encana’s lands in the Montney region— but that deal fell apart in mid-2011 after they failed to agree on how that project would operate.