Encana Corp. reached a $2.2-billion joint venture with PetroChina to develop the hot new Duvernay property in Alberta, in a deal that will fly just below the radar of Investment Canada's new guidelines on state-owned enterprises.
The pact comes less than a week after the federal government unveiled investment rules that raise new hurdles for foreign state-owned companies to take over Canadian oil and gas producers and encourage exactly the type of deal that Encana and PetroChina concluded Thursday.
The deal shows foreign players remain anxious to invest in the Canadian energy industry even with the new guidelines. Chinese officials have said the government's rules could put a chill on their investment plans in Canada, but PetroChina was clearly eager to proceed with Encana. Sources say the deal was essentially done weeks ago, but the firms held back their announcement until after Ottawa released its CNOOC decision and the new rules of engagement for state-owned enterprises.
Encana CEO Randy Eresman said the partners received assurances from Ottawa that the transaction would not be reviewed under the Investment Canada Act prior to closing the deal on Thursday because there is no transfer of control.
"We think this kind of transaction . . . largely to bring foreign capital in to help us develop undeveloped resources but having a minority interest is the ideal way to go," Mr. Eresman said in Calgary.
In a statement last night, Industry Canada said investments that do not involve acquisition of control are not reviewable. But the government will undertake further due diligence to ensure this investment does not involve transfer of control.
Under the terms of the agreement, PetroChina – China's largest international oil company – will gain a non-controlling, 49.9-per-cent interest in Encana's 445,000 acres in the Duvernay in west-central Alberta for $2.18-billion.
Encana will remain the operator with a 50.1-per-cent interest. The partners expect to spend $4-billion over the next four years to develop the Duvernay land that is rich in natural gas and condensates, an oil-like substance that is used to dilute bitumen for shipment in pipelines.
Encana entered into a similar $2.9-billion joint venture with Japan's Mitsubishi Corp. last February to develop a shale gas field in Alberta and British Columbia.
Asian companies – whether state-owned or private-sector – are keen to buy Canadian gas reserves and are backing projects to liquefy Canadian gas at plants on British Columbia's coast and ship it to their home markets, where gas prices are far higher than they are in Canada. The same rationale was behind the $6-billion acquisition by Malaysia's state-owned Petronas of Calgary-based Progress Energy Resources Corp., which the Harper government approved last week.
Ottawa also gave the green light to CNOOC Ltd., another Chinese state-owned company, in its $15.1-billion (U.S.) bid to acquire Nexen Inc., which owns a controlling interest in the Long Lake oil sands project and a 7-per-cent stake in Syncrude Ltd.
Prime Minister Stephen Harper said his government will not approve any more acquisitions of oil sands companies by state-owned enterprises (SOEs), and acquisitions in other sectors by companies that are controlled by foreign governments would only be approved if they operate as commercial entities and are not unduly influenced by their home governments.
Faced with rock-bottom prices for natural gas in North America, Encana has shifted its focus to new unconventional plays that contain not only gas but liquids like butane, propane and condensates. The company has been selling assets and looking for joint venture partners to finance that shift.
Mr. Eresman said complex projects like the Duvernay have high up-front costs that can be reduced through aggressive development and a steady stream of capital spending.
"That's part of the reasons to bring in partners," Mr. Eresman said. "It assists us in really accelerating the pace at which we can move these projects forward to commercialization."
PetroChina and Encana aborted a $5.5-billion joint venture project last year, but the Chinese company said the new deal represents part of its long-term commitment to the North American natural gas business.
"This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio," Zhiming Li, president of PetroChina's Canadian subsidiary, said in a statement. "Encana is our ideal long-term partner for the development of our future natural gas business."
With files from reporter Boyd Erman in Toronto