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Encana adds second Japanese partner
Encana has pulled off a second deal with a Japanese investor in as many months, selling a 32.5 percent interest in 5,500 existing and future coalbed methane wells in southern Alberta for C$602 million.
It’s all part of the Canadian giant’s strategy to develop partnerships to overcome the 10-year low in gas prices that Canada’s National Energy Board forecasts will take another two years to make a significant recovery.
The joint venture with Toyota Tsusho covers 480,000 net acres of Encana’s holdings of 2.1 million net acres in the Horseshoe Canyon dry gas fairway.
Encana, which will remain operator, said the deal recognizes the value of the lost-cost, low-risk asset and allows it to maintain an ongoing program to preserve capital.
Toyota Tsusho said that unlike many CBM projects, Horseshoe Canyon coals do not produce water and can be developed without environmental concerns and costs related to dewatering the coals before production.
Brought on stream in 2001, the coals have current output of 120 million cubic feet per day from 4,000 wells and the potential to develop more than 1 trillion cubic feet.
Some 1,500 wells planned Over the development period for the joint venture, about 1,500 wells are expected to be drilled and about 1,600 recompleted in order to raises production to 140 million cubic feet per day.
Andrew Potter, an analyst with CIBC World Markets, said in a note that Toyota Tsusho paid a premium price of C$3.86 per thousand cubic feet equivalent of proved plus probable reserves compared with his own firm`s 54 cents per thousand cubic feet equivalent for all of Encana`s proved plus probable reserves.
Randy Ollenberger, an analyst with BMO Capital Markets, said it is clear the Japanese “are keen to replace a lot of nuclear power generating capacity, so they’re pretty aggressive in terms of chasing down natural gas.”
“I think we`ll see more Japanese joint ventures or even direct acquisitions in the natural gas business in North America,” he said, estimating Japan would have to secure 10 billion cubic feet per day of gas supply to meet its power generation needs.
In February, Encana negotiated a $2.9 billion deal with Japanese industrial conglomerate Mitsubishi for 40 percent of its undeveloped Cutbank Ridge property in northeastern British Columbia.
—Gary Park
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