EnCana to shop heavy oil assets

Gary Park

Petroleum News Calgary Correspondent

EnCana has added to the gathering clouds over Western Canada’s conventional sector by announcing plans to offload assets worth up to C$1 billion in 2004 and turn to unconventional prospects.

“The future is in tight sands, coalbed methane and to some extent gas shales and that is what we call resource plays,” said Chief Executive Officer Gwyn Morgan, as EnCana launched a program to produce 200 million cubic feet per day from southern Alberta’s coalbed methane deposits within five years.

He said coalbed methane will “become a big resource for us and for the rest of the Canadian industry.”

Topping the list of assets on the block is EnCana’s 53 percent stake in Petrovera Resources heavy oil project, a joint venture with ConocoPhillips on the Alberta-Saskatchewan border that produces 40,000 barrels of oil equivalent per day.

Although ConocoPhillips has no interest in becoming sole owner, Morgan said “there is a great market out there for those kind of assets,” especially in the expanding and hungry income trust sector.

“Being at the front of the food chain we have managed to create assets and for those that don’t quite fit we sell them at very good valuations because the trust market operates on a lower cost of capital than we do.”

The trusts often distribute more than 90 percent of their cash flow to unit holders, replacing declining reserves through acquisitions rather than the drill bit.

EnCana Chief Operating Officer Randy Eresman said the company aims to strengthen its asset base each year by turning over the bottom 5 percent of its production portfolio.

Even with the divestiture, the output will likely be replaced by EnCana’s Foster Creek and Christina Lake oil sands projects, allowing the big Canadian independent to achieve its 10 percent production growth in 2004, with volumes between 820,000 to 870,000 boe per day.