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PetroChina Co. (857) agreed to pay Encana Corp. (ECA) C$1.18 billion ($1.2 billion) for a 49.9 percent stake in an Alberta shale formation as Asia’s biggest oil producer steps up acquisitions of overseas oil and gas assets.
PetroChina will also pay C$1 billion over four years to fund development of the project, Encana said in a statement yesterday. The accord follows Beijing-based PetroChina’s agreement this week to pay $1.63 billion for a stake in the Browse liquefied natural gas venture in Australia.
The two deals more than double PetroChina’s spending on overseas assets this year, and come less than a week after Canada approved the $15.1 billion takeover of Nexen Inc. (NXY) by rival Cnooc Ltd. (883) The state-owned company wants half its oil and gas output to come from overseas by the end of the decade.
“It seems obvious that they were waiting for the government approval for Nexen so they could get clarification of the rules surrounding state-owned ownership,” Eric Nuttall, a portfolio manager who oversees C$100 million at Sprott Asset Management LP in Toronto, said in a phone interview.
The deal marks the first between Canada and a state-owned company since Canadian Prime Minister Stephen Harper unveiled new foreign investment rules on Dec. 7. The rules, announced after the approval of Cnooc’s purchase of Nexen, prohibit state- owned enterprises from taking control of Canadian oil-sands businesses unless there are “exceptional circumstances.” Joint ventures and minority stake acquisitions aren’t barred under the rules.
Canada is deciding whether the deal will be reviewed, Margaux Stastny, a spokeswoman for Industry Minister Christian Paradis, said in an e-mail response to questions.
“Due diligence is being exercised by reviewing details of the proposed investment to determine if it is reviewable,” Stastny said. “There are circumstances in which control is deemed to be acquired even where a minority ownership interest is involved.”
It’s the first time Encana has announced a deal with PetroChina since a C$5.4 billion agreement to develop the Calgary-based company’s Cutbank Ridge acreage collapsed in June 2011.
Encana’s Chief Executive Officer Randy Eresman said the deal wasn’t “held up” by the development of Canada’s new rules, though he did consult with the federal government to make sure the joint venture would be allowed.
“Everybody in the industry was watching very closely how the potential new rules might affect anything that they were in the process of doing or considering doing in the future,” Eresman said in a phone interview from Calgary.
Mao Zefeng, a spokesman for PetroChina in Beijing, didn’t answer two calls each to his office line and mobile phone seeking comment.
Excluding the Encana agreement, Chinese companies had announced $27 billion of oil and gas acquisitions this year, the most since at least 2007, according to data compiled by Bloomberg.
The deal means Asia-Pacific companies have spent more than $100 billion on oil and gas assets this year, overtaking the U.S. for the first time, according to data compiled by Bloomberg. The region is seeking energy assets to feed demand that’s growing at more than double the world average of 2.5 percent last year.
PetroChina is planning to invest at least $60 billion this decade in global oil and natural gas assets, Chairman Jiang Jiemin said in March. The company said in August it’s looking at assets in Central Asia, east Africa, Australia and Canada, with President Zhou Jiping telling reporters at the time he’s “completely confident” of achieving that goal.
“The deal valuation is attractive because PetroChina can extract more synergistic value from this joint venture when the firm redeploys Encana’s best practices back home to develop China’s own vast gas resources,” Gordon Kwan, head of energy research at Mirae Asset Securities HK Ltd., said in an e-mail response to questions.
The purchase, which implies C$9,800 an acre in the Duvernay shale formation in Alberta, is a “very good price” and boosted other producers with nearby acreage, Nuttall said. Athabasca Oil Corp. gained 5.7 percent to C$10.25 in Toronto, the most since Aug. 31. The deal’s implied price translates into as much as C$2 billion in value for Calgary-based Athabasca’s 300 net sections in the formation, Nuttall said.
The agreement with PetroChina unit Phoenix Duvernay Gas will also allow the company to speed development in the Duvernay, Eresman said.
Encana rose 2 percent to C$20.85 at the close yesterday in Toronto. Encana was the best performer on the 30-company Bloomberg Americas Oil & Gas Index. PetroChina was unchanged at HK$10.76 at 9:38 a.m. in Hong Kong.
Encana has reported as much as 300 barrels of petroleum liquids per million cubic feet of gas in the Duvernay, a formation analysts and executives have likened to the liquids- rich Eagle Ford Shale in Texas. Petroleum liquids include ethane, butane and propane that typically fetch higher prices than gas.
Encana has been pursuing a strategy of asset sales and joint-venture agreements to boost cash flow as North American natural gas prices dropped to a decade-low in April.
The agreement brings Encana’s net proceeds from joint ventures and asset sales to C$3 billion this year, up from an annual target announced at the company’s June investor day of C$2 billion to C$2.5 billion.
Mitsubishi Corp. (8058) agreed to pay C$1.46 billion for a 40 percent stake in development of Encana’s Cutbank Ridge shale gas acreage in British Columbia and Alberta on Feb. 17. The deal came eight months after PetroChina walked away from an agreement to take a 50 percent stake in a larger position in Cutbank Ridge that also included existing production.
RBC Capital Markets acted as Encana’s financial adviser for the transaction with PetroChina and Burnet, Duckworth & Palmer LLP was its legal adviser.
Earlier this week, PetroChina agreed to buy an 8.33 percent stake in the East Browse joint venture and a 20 percent share of West Browse from BHP Billiton Ltd. (BHP) The purchase in the project operated by Woodside Petroleum Ltd. (WPL) gives the company a share in gas resources off the Australian coast that may underpin an LNG venture estimated by Deutsche Bank AG to cost A$44 billion ($46 billion).
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