Mitsubishi Teams Up With Encana For Cutbank Ridge Joint Venture

Acquired 40% stake in 409,000-net-acre Cutbank Ridge partnership in BC targeting Montney.

Just a week after selling off its midstream assets in the region, Encana Corp., Calgary, (Toronto, NYSE: ECA) has entered an agreement with Mitsubishi Corp., Tokyo, (Tokyo: 8058) for the Japanese firm to acquire a 40% stake in Encana’s Cutbank Ridge partnership in British Columbia for $2.9 billion.

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 northeastern British Columbia. Through the Cutbank Ridge partnership, Encana and Mitsubishi plan to jointly develop production capacity to deliver abundant gas to markets for decades ahead.

Along with Montney lands in British Columbia, the partnership lands feature 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.

In June 2011, Encana had to pull the plug on a potential $5.4-billion joint venture with PetroChina International Investment Co. after the two entities failed to see eye-to-eye on certain elements of the deal, including the joint operating agreement.

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% 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% of the total expected capital investment over that period.

The Cutbank Ridge partnership’s lands have proved undeveloped reserves of approximately 900 billion cubic feet of natural gas equivalent, proved and probable reserves are 1.4 trillion cubic feet equivalent and proved, probable and possible reserves of 1.6 trillion cubic feet equivalent. The lands contain estimated natural gas initially in place of about 130 trillion cubic feet.

Encana president and chief executive Randy Eresman says, “Early in 2002, we began assembling our expansive Cutbank Ridge lands along the foothills of the Canadian Rockies, straddling the British Columbia-Alberta border. Over the last 10 years, we have systematically and methodically explored, defined and developed the enormous resource potential of this remarkable Canadian natural gas asset. This transaction represents the next step towards the long-term development and value recognition of our undeveloped Cutbank Ridge lands in British Columbia – a major natural gas resource capable of delivering long-term, affordable energy supplies to domestic and export markets.”

Jun Yanai, Mitsubishi executive vice president, CEO for Energy Business Group, says, “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.”

RBC Capital Markets and Jefferies & Co. Inc. are financial advisors to Encana. Burnet, Duckworth & Palmer LLP is legal advisor to Encana.