October 29, 2004 --- Vol. 10, No. 98October 2004

EnCana unloading assets to focus on North American onshore

EnCana has made one of the biggest strategic shifts of its short history, unloading its British North Sea assets and preparing to back out of the Gulf of Mexico and Ecuador.

In a cross-town deal with fellow Canadian independent Nexen, EnCana announced today that its North Sea holdings will be sold for US$2.1 billion in cash.

The bundle includes a 43.2 percent stake in the Buzzard oil field with net proved reserves of 106 million barrels of oil equivalent, a 41 percent and 54.3 percent interest in the Scott and Telford fields (net proved reserves of 23 million boe) and exploration licenses covering 744,000 net acres.

The operations are averaging output of 23,200 barrels per day this year.

The Ecuador assets include interests in five Oriente basin blocks which average production of 77,100 bpd and hold 162 million barrels of proved reserves, plus a 36.3 percent stake in the OCP Pipeline, which has capacity of 500,000 bpd.

Once a prized part of EnCana’s portfolio, Ecuador has become a millstone in recent times as the company has become embroiled in a nasty fight with the Ecuador government over whether it should pay 12 percent valued-added taxes on exported oil — a fight that has also affected Occidental Petroleum.

In the last two months speculation has swirled that EnCana was on the verge of selling its holdings, with Indian’s ONGC Videsh topping a list of contenders that also included the China National Petroleum Corp.

The Gulf of Mexico properties include 25 percent shares in the Tahiti, Tonga, Sturgis and Jack discoveries and 6.25 percent of St. Malo, plus an average 40 percent in 224 exploration blocks covering 516,000 net acres.

Morgan said the divestitures, which have previously generated US$1.3 billion this year, are being directed towards debt repayment and purchase of EnCana shares.

He said they will also free EnCana to put a “very sharp focus” on North American resource plays “where we have a clear competitive advantage.”

He said North American gas production has “entered into a classic period of increasing costs and accelerating decline rates.

“We expect that onshore North America’s future will be dominated by unconventional tight gas and oil sands, which we classify as resource plays,” he said.

Morgan said the looming supply/demand challenge for North American gas puts the pressure on the Western Canada Sedimentary Basin and U.S. traditional basins to ease price volatility.

He said that other than one liquefied natural gas import project no significant additions to LNG volumes are expected within five years, while the North Slope is at least 10 years away and the Mackenzie Delta is five to six years from start-up.

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