From the Vancouver Sun – Feb 10, 2011
PetroChina Co., the nation’s biggest energy producer, agreed to buy a 50 percent stake in Encana Corp.’s Cutbank Ridge assets for C$5.4 billion ($5.4 billion), giving the Chinese company its first gas asset in North America.
The acquisition would give PetroChina daily production of 255 million cubic feet of natural gas from 635,000 acres in the Canadian provinces of Alberta and British Columbia, Encana said in a statement today. The companies will also form an equal venture to increase output, the Beijing-based producer said.
The deal would bring the total value of energy acquisitions by Chinese companies since last year to about $46 billion to supply the world’s fastest-growing major economy. The Canadian transaction follows PetroChina’s decision last month to form a venture with U.K. refiner Ineos Group Holdings Plc to process crude oil at plants in Scotland and southern France.
“PetroChina is now buying assets in developed countries like Canada and the U.S. as well as developing nations as part of its strategy to become an international oil major,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “The focus on gas is because demand for the fuel in China is growing. Gas demand is rising by about 20 percent a year and the government is encouraging its use because it’s cleaner.”
China’s government wants to triple the country’s use of gas, which pollutes less than oil and coal, by 2020 and the fuel to account for about 10 percent of energy consumption. PetroChina plans to spend at least $60 billion on global assets in the next decade to increase reserves and production. The Encana deal, announced after market close yesterday, requires approval from the Canadian and Chinese authorities.
Share Gains
PetroChina has risen 25 percent in Hong Kong trading in the past year, outpacing the 17 percent increase in the benchmark Hang Seng Index. The stock fell 3.8 percent to close at HK$10.54 yesterday. Encana dropped 1.9 percent to C$30.65 on the Toronto Stock Exchange.
“By combining resources with PetroChina in this joint venture, we would expect to recognize additional value through accelerating our pace of development,” Encana Chief Executive Officer Randy Eresman said in yesterday’s statement.
The Calgary-based company in 2009 spun off Cenovus Energy Inc. to focus on natural gas as prices for the resource began falling because of oversupplies generated by an onshore drilling boom in North America.
Encana shares have gained 5.4 percent this year as investors expect ventures with Chinese competitors would shelter the Canadian company from the slump in natural gas prices, said Daniel Pratt, director of oil and gas equity research at Ticonderoga Securities, before yesterday’s announcement. Encana’s shares gain is double that of the Standard & Poor’s/TSX Composite Index this year and tops the 2.8 percent increase for the Canadian energy index.
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