Formed a JV for a 50% stake in the Cutbank Ridge gas-rich assets in BC & AB.
Further expanding Asia's foothold in the North American shale-gas sector, PetroChina International Investment Co. Ltd., a subsidiary of PetroChina Co. Ltd., Beijing, (NYSE: PTR) has formed a 50/50 joint venture with Calgary-based Encana Corp. (NYSE; Toronto: ECA) for a 50% stake in the Canadian gas producer's Cutbank Ridge gas-rich assets in British Columbia and Alberta.
At a total deal value of C$5.4 billion, the JV is China's largest Canadian upstream transaction ever recorded, based on data compiled by the IHS Herold Global M&A Database.
Encana's Cutbank Ridge assets comprise 635,000 net acres on the British Columbia and Alberta boundary and also include the majority of its Montney, Cadomin and other gas assets on a portion of these properties. Midstream assets consist of some 700 million cubic feet per day of processing capacity, 3,400 kilometers of pipelines and the Hythe gas storage facility.
Daily production from the Cutbank Ridge assets is currently 255 million cubic feet equivalent per day. Providing additional upside to the deal, proved reserves amount to 1 trillion cubic feet of natural gas equivalent.
Per the JV terms, each partner is expected to contribute 50/50 to future development capital requirements, with Encana operating the JV assets and marketing their production.
"By combining resources with PetroChina in this joint venture, we would expect to recognize additional value through accelerating our pace of development and by leveraging increased capital and operating efficiencies through further technical advancements and through greater certainty of the long-term development plan for the business assets," notes Randy Eresman, Encana president and chief executive.
RBC Capital Markets and Jefferies & Co. Inc. are financial advisors, and Burnet, Duckworth & Palmer LLP is legal advisor to Encana.
The transaction metrics are also rich, according to David Tameron, senior analyst at Wells Fargo LLC. "Assuming US$1 billion (gross) for the midstream assets, this equates to US$18,235 per thousand cubic feet equivalent (Mcfe) per day, US$4.65 per Mcfe proved, and US$7,200 per acre," he says in a Feb. 10 research note to clients.
"Metrics can and will be sliced different ways, but the bottom line is, in our opinion, (the) value exceeded market expectations," Tameron adds, also rating the deal as "positive" for another Canadian operator in its coverage universe. Using the Encana-PetroChina JV metrics, the Wells Fargo analyst suggests that this could value Forest Oil's Canadian assets between US$1.2- and US$1.8 billion.