Encana, Mitsubishi Ink Cutbank Ridge Deal (Canada)

Encana Corporation has entered into an agreement with Mitsubishi Corporation that will see the Japanese global integrated business enterprise invest approximately C$2.9 billion for a 40 percent interest in the Cutbank Ridge Partnership.

The Partnership holds about 409,000 net acres of Encana’s undeveloped Montney-formation natural gas lands in the company’s Cutbank Ridge resource play in northeast British Columbia. Through the Cutbank Ridge Partnership, Encana and Mitsubishi plan to create long-term shareholder value by jointly developing production capacity to deliver abundant natural gas to markets for decades ahead.

“This agreement brings a world-class partner to a world-class energy asset. Cutbank Ridge ranks among the most prolific and lowest-cost resource plays in North America and Mitsubishi’s financial commitment recognizes the significant value contained in a portion of our enormous resource opportunity. This is a landmark investment by an exceptional and global integrated business partner. The alignment we’ve already established with Mitsubishi will greatly enhance our plans to maintain Cutbank Ridge’s leadership position among the most cost competitive resource plays on the continent. Despite an increased capital spending profile on these natural gas assets resulting from this transaction, Encana plans to more than offset the near term impact on North American natural gas production oversupply by capital spending reductions elsewhere in its natural gas portfolio,” said Randy Eresman, Encana’s President & Chief Executive Officer.

“We are excited to join Encana — a first-rate unconventional producer that has pioneered low-cost, continuous improvement and technical innovation across its premium portfolio of North American resource plays. Encana’s operational merit, execution excellence and high performance culture are an ideal match with our business approach. We add value by leveraging organizational strength and global networks as we seek to contribute to the enrichment of society through business firmly rooted in principles of fairness and integrity. Mitsubishi looks forward to tapping new natural gas supplies for the long-term development and eventual delivery to world markets. Through this development, we aim to contribute to economic growth and job creation in Canada,” said Jun Yanai, Mitsubishi’s Executive Vice President, Chief Executive Officer for Energy Business Group.

Under the agreement, Encana will own 60 percent and Mitsubishi will own 40 percent of the Cutbank Ridge Partnership. Mitsubishi will pay C$1.45 billion on closing, which is expected to occur later this month, and Mitsubishi will invest C$1.45 billion in addition to its 40 percent of the Partnership’s future capital investment for a commitment period, which is expected to be about five years, thereby reducing Encana’s capital funding commitments to 30 percent of the total expected capital investment over that period. The assets in the Partnership include about 409,000 net acres of undeveloped Montney lands in British Columbia, plus additional development potential in the Cadomin and Doig geological formations. Encana will be the managing partner and operator of the Partnership. This transaction does not include any of Encana’s current Cutbank Ridge production of about 600 million cubic feet of natural gas per day, processing plants, gathering systems or Encana’s Alberta landholdings.

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LNG World News Staff, February 17, 2012