Encana, PetroChina take $2.2 billion stab at joint venture

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encana (AP) encana (AP)
SummaryEncana said the venture allows the partners to bypass stringent reviews under the government's new restrictions.

PetroChina (601857.SS) will pay Encana Corp (ECA.TO) C$2.2 billion ($2.2 billion) for a 49.9 percent stake in a rich Alberta shale gas prospect owned by the Canadian company, the first big deal since Ottawa issued new guidelines for major energy investments by foreign state-owned enterprises.

Encana said the venture, with a non-controlling interest for PetroChina, allows the partners to bypass stringent reviews under the government's new restrictions.

The government had no immediate comment. But there was no indication of delays like the one faced by CNOOC Ltd (0883.HK) in its eventually successful bid for oil producer Nexen Inc (NXY.TO).

Encana announced the deal less than a week after Canada issued its new framework for approving takeovers of resource assets, particularly oil sands, by foreign state-owned companies. The government also approved the Nexen takeover and a bid for Progress Energy Resources (PRQ.TO) by Malaysia's Petronas PETR.UL.

"The timing of this deal is really quite unbelievable," said lawyer Richard Steinberg, head of Fasken Martineau's mergers & acquisitions practice group.

"This is a step removed from the oil sands and so to the extent that this is not Canadian oil sands, it does seem to be in a less sensitive area and not directly in the bulls-eye," said Steinberg, noting that the deal appears to tick all the boxes in the government's new rule book.

Under the deal, which follows a failed joint-venture attempt by the pair in 2011, a unit of PetroChina known as Phoenix Duvernay Gas will take the nearly-half interest in Encana's Duvernay play in west-central Alberta, estimated to contain 9 billion barrels of oil equivalent

It has already paid C$1.18 billion and the other C$1 billion is payable over the next four years to help Encana pay for development, said Encana, Canada's largest natural gas producer. During the period, the partners will spend C$4 billion on drilling and processing facilities.

With the agreement, Encana makes good on a big part of a high-profile effort to attract partners to help fund development of a host of prospects across North America. It is concentrating on those that feature natural gas that is high in liquid hydrocarbon content as a way to reduce its on spending and protect its balance sheet.

Such fuels are priced closer to crude oil than to dry gas, of which there is continent-wide glut that has driven down prices at times to decade lows.

"It's largely an opportunity for us to explore, delineate and ultimately develop what

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