Encana Corp. is selling gas pipeline and processing assets in Western Canada's Montney region to Veresen Inc. and KKR & Co. LP for $412-million in a deal that allows Encana to concentrate on drilling while the buyers handle transportation and expansion of the infrastructure.
Veresen, a Calgary-based pipeline and power company, and KKR, the prominent U.S. private-equity firm, have agreed to invest up to $5-billion to support future production in the Montney, a massive liquids-rich natural gas play that straddles the Alberta-British Columbia border.
The buyers have formed a 50-50 partnership called Veresen Midstream LP, which will provide compression and transport service to Encana and one of its partnerships on a 30-year fee-for-service basis.
The deal has been hammered out with global oil prices in a dramatic slide and financing options getting scarce. Asset transactions are seen as essentially a third-rail funding option as equity and debt markets grow stingier.
The Globe and Mail reported last week that the deal was in the works as investors questioned how, against a backdrop of sharply weaker energy markets, Encana planned to develop $9-billion (U.S.) of assets it has acquired in the past year.
"We are unlocking value from our midstream infrastructure that we can redirect to strategic upstream opportunities while ensuring reliable, efficient midstream service to support our ongoing operations and development in the Montney," Renee Zemljak, Encana's vice-president of midstream, marketing and fundamentals, said in a statement.
The deal gives Encana flexibility to speed up or delay development of the Montney production as market conditions warrant, she said.
In oil-industry parlance, midstream refers to the equipment that transports oil and gas between production, or "upstream," facilities and the major pipelines that carry the hydrocarbons to refineries and end-users, known as the "downstream."
The assets being sold comprise those in the Dawson, B.C., area operated by Encana independently and in a partnership it has with Japan's Mitsubishi Corp. The Montney is seen as one of the energy-sector's next major resource deposits, and Encana is one of the most active drillers there. Veresen said the partnership will be its main unit for expansion of oil and gas liquids transport in Western Canada.
The deal is slated to close in the first quarter of 2015.
KKR, led by Henry Kravis and George Roberts, set up a $2-billion fund to invest in unconventional North American energy this year. It also opened an office in Calgary, adding to a growing roster of private-equity firms investing in Canadian oil and gas.