EnCana quitting gas storage business

The leaning down of EnCana to a pure resource company will see North America’s largest natural gas storage network either sold for a possible US$600 million-$900 million or spun off in an initial public offering.

The big Canadian independent said storage is not considered “crucial to the success” of its oil and gas exploration and development business.

It hopes to conclude a transaction by early 2006 of assets that include two storage facilities of its AECO Hub, which holds about 135 billion cubic feet or 40 percent of all storage in Alberta; its Wild Goose facility in northern California that holds 25 billion cubic feet; the 15 billion cubic foot Salt Plains facility in Oklahoma; and an unfinished Louisiana project.

Cash flow from the facilities totaled $80 million last year and some analysts are counting on a sale price of at least 10 times operating cash flow.

Since the merger of PanCanadian Energy and Alberta Energy Co. in 2002, EnCana has disposed of more than $8 billion in assets ranging from the U.K. North Sea to the Gulf of Mexico and Western Canada. It is also trying to unload its oil holdings in Ecuador, other producing properties in Western Canada and its natural gas liquids interests.

The AECO hub was established in 1988 in southeastern Alberta and by the early 1990s was operating as a commercial hub.

Although not rated in the same league as the Henry Hub it is now viewed as an important pricing point for North America and, for that reason, is expected to attract heated bidding.

Among the prospective candidates, TransCanada is expected to make a bid, given that it is spending C$200 million this year expanding its own gas storage business in Alberta.

—Gary Park