RPT-UPDATE 4-PetroChina pays $5.4 bln for Canadian gas assets
799 words
10 February 2011
01:02
Reuters News
LBA
English
(c) 2011 Reuters Limited
* PetroChina gets 50 pct of Encana's Cutbank Ridge project
* Venture allows Encana to speed up reserve development
* Analysts say deal is expensive for PetroChina
* PetroChina shares fall over 2 pct, lag Hang Seng index
(Adds analysts' comments, background, PetroChina share reaction)
By Jeffrey Jones and Farah Master
CALGARY, Alberta/HONG KONG, Feb 10 (Reuters) - PetroChina is purchasing
half of a prolific shale gas project from Canada's Encana Corp for C$5.4
billion ($5.4 billion), marking the largest Chinese investment yet in a
foreign natural gas asset.
Chinese companies such as PetroChina and CNOOC have been scouring globally
for unconventional gas assets to reduce reliance on coal and satisfy its
energy hunger to fuel its economy, now the world's second-largest.
In January, CNOOC struck a $570 million shale deal with U.S. natural gas
company Chesapeake Energy Corp , its second such deal with the American
company in about four months.
On Thursday, shares of PetroChina , Asia's largest oil and gas producer,
fell more than 2 percent in Hong Kong trade, lagging the Hang Seng's 0.7
percent fall, as analysts said the deal, to be paid all in cash, was
pricey.
Encana shares closed down 60 Canadian cents, or 2 percent, at C$30.65 on
the Toronto Stock Exchange. It announced the deal after the market closed.
"Not too dissimilar to the CNOOC/Chesapeake deals, the PetroChina/Encana
tie-up is another win-win that enables China to acquire quick exposure to
the long term shale oil/gas boom in North America," said Gordon Kwan, an
analyst with Mirae Asset Management in Hong Kong.
Kwan said the deal will also allow Chinese companies like PetroChina to
migrate the technology back to China for its development in domestic
unconventional oil and gas resources.
LITTLE THREAT FROM POLITICS
Encana, one of the North America's largest gas producers, and state-owned
PetroChina agreed to form a 50-50 joint venture to develop the Cutbank
Ridge lands in the westernmost province of British Columbia over several
years.
The deal, which is subject to approval by the Canadian and Chinese
governments, came after nine months of talks, both companies said.
The venture will allow Encana to accelerate development of its vast
reserves while keeping a lid on capital investments at a time when natural
gas markets are weak. For the Chinese, it's another step toward the
country's goal of tripling the use of the lower-carbon fuel over the next
decade.
The venture is likely to go ahead without much political fanfare as the
purchase of a 50 percent stake in the Canadian firm's unconventional gas
assets was not nearly as threatening as an outright acquisition.
"You can't guarantee it is going to go ahead but I think it is quite
likely. These guys are more than happy to take a few billion dollars in
there, that is ultimately what it is all about," said Brynjar Bustnes,
analyst at JP Morgan in Hong Kong.
The value of the deal surpasses PetroChina's $3.1 billion joint bid with
Royal Dutch Shell to buy Australia's coal-seam gas player Arrow Energy last year.
It is also worth more than the largest previous Canadian energy buy,
Sinopec Corp's $4.65 billion acquisition of ConocoPhillips' stake in the
Syncrude Canada oil sands venture.
"It looks expensive to us," said Neil Beveridge, analyst at Sanford C.
Bernstein in Hong Kong.
"If you look at the proven reserves that PetroChina are getting it is one
trillion cubic feet of gas for $5.4 billion, so it looks to be about $5.40
per mscf (million cubic feet) on the current proven reserves which looks to be expensive."
The deal has been so priced even as North American gas prices are
languishing under the weight of high inventories and the potential
production that new technology has opened up in hard-to-reach shale
formations.
The price tag represents 3.8 percent of Encana's 2010 estimated production
for 24 percent of its market capitalisation.
"This is an outstanding valuation for Encana," CIBC World Markets analyst
Andrew Potter said.
Cutbank Ridge, comprising 635,000 net acres (257,000 hectares) in
northeastern British Columbia, currently produces 255 million cubic feet of gas a day from proved reserves of about 1 trillion cubic feet.
($1=$1 Canadian)
(Additional reporting by Jim Bai in BEIJING and Anna Driver in