Potential Joint Venture: Encana and Sinopec
Encana’s natural gas plays have enormous resource potential in Horn River, Greater Sierra (Jean Marie formation) and Cutbank Ridge (Montney formation) in northeast British Columbia. According to Randy Eresman, Encana’s President & Chief Executive Officer, “the depth of our enormous unconventional natural gas resource portfolio, we are accelerating our organic growth rate and targeting a doubling of our production per share over the next five years. Beyond our internally funded capital investments, we have an extensive joint-venture program that helps accelerate value recognition across our North American resource portfolio. With this potential Sinopec joint venture, we would expect, upon successful completion of a transaction, to lower costs, reduce risks, increase our capital efficiencies, improve project returns, optimize production techniques and tap natural gas opportunities that would otherwise remain dormant for some time.”
Enhancing competitiveness of Canadian natural gas: 'Recent breakthrough technologies are transforming North America’s energy future by opening vast new supplies of clean burning natural gas, particularly in U.S. shale gas plays. This initiative with CNPC has the potential to significantly benefit Canada’s economy through increased investment in our three British Columbia natural gas plays. New investments of this nature hold considerable promise for creating jobs and new markets, expanding resource revenues for governments and substantially enhancing the competitiveness of Canadian natural gas in North America,' Eresman said.
Targeting to increase the current joint-venture investment levels: In the past three years, Encana has attracted commitments of more than US$4 billion of joint-venture capital through multiple agreements in Canada and the United States, of which about $900 million is to be invested in 2010. Encana is targeting annual joint-venture investments of between $1 billion and $2 billion. A joint venture with CNPC could contribute significantly towards achieving that investment target.
Joint venture framework: In the Heads of Agreement signed at the Fairmont Chateau Laurier in Ottawa, Encana and CNPC stated that they 'believe the full-scale partnership and cooperation will bring a win-win situation and help to realize the business goals of each' company and they 'intend to jointly and comprehensively develop the natural gas value chain business in Canada.' Under a potential joint venture, Encana would be the operator of all developments, meaning it would drill and complete the wells, build the processing facilities and pipelines and conduct all field work for the joint venture. CNPC would invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge. The companies expect that it will take several months to negotiate a potential joint venture, which would be subject to typical conditions precedent, including the negotiation of acceptable terms and conditions, receipt of the Encana Board of Directors’ approval of the final terms of the proposed joint venture and receipt of any necessary regulatory approvals.
Tremendous resource potential across Encana lands: Across North America, Encana has more than 7.5 million net acres of undeveloped land. Based on an independent assessment of Encana’s proved reserves and highest-quality economic contingent resources, Encana has estimated that its resource potential is more than sufficient to support the company’s long-term goal of doubling production per share over the next five years. These natural gas assets are large enough to support approx. 23,000 drilling locations – an 18-year inventory at the company’s current pace of development. 'Our proved reserves and highest-quality economic contingent resources represent just the tip of the iceberg when it comes to what we ultimately expect to develop on our existing resource base. A sizeable portion of our company’s future resource potential resides on our extensive lands in northeast British Columbia and a joint venture with CNPC would help develop natural gas from a portion of these promising economic and clean-energy opportunities,' Eresman said.
Responsible natural gas growth: The joint venture is expected to develop existing Encana lands at a rate that would be faster than would be achieved without the additional investment. As Encana pursues its long-term growth strategy, the company remains committed to demonstrating reliability and trustworthiness as it continually pursues safe, energy-efficient, sustainable development. Consistent with its long-standing operating and corporate responsibility practices, Encana is committed to advancing this potential joint venture with consideration and respect for the people, communities and environments where the company operates.
British Columbia natural gas plays: In northeast British Columbia, Encana’s Greater Sierra key resource play holds about 275,000 net acres of land covering the Devonian shale formation in its Horn River play and about 1.7 million net acres covering the Jean Marie formation. Encana’s Cutbank Ridge key resource play holds about 720,000 net acres of land covering the Montney formation. Combined, first quarter 2010 production from these key resource plays was about 535 million cubic feet of gas equivalent per day.