Encana Corp. announced plans to sell one its original unconventional natural gas shale plays, as it aims to rustle up $1-billion (U.S.) in asset sales this year and focus on its largest projects.
The natural gas powerhouse said on Thursday it wants to sell assets in the Fort Worth basin of Texas's Barnett Shale – a well-developed zone where Encana cut its teeth in the shale gas business. It wants to sell all of its Barnett assets, which it acquired when it bought Tom Brown Inc. in 2004.
Rather than sticking with well-proven assets like those in the Barnett, Encana is hanging its future on land it controls in the Alberta and B.C. rock formations in Haynesville, Horn River and Montney. Production at its Haynesville properties, for example, is about four times that in the Barnett.
"Our focus is some of our larger plays," Carol Howes, a spokesperson for Encana, said. "[The Barnett]is one of our smaller key resource plays … and it is a relatively mature area."
The potential sale could fetch around $800-million to $1-billion, one analyst calculated, using figures from a Fort Worth basin deal completed in February. Range Resources Corp. sold wells with production totalling 113 million cubic feet of natural gas equivalent per day for $900-million, while Encana controls 125 MMcfe per day worth of production in the same region. The analyst's estimate was based on how much money Range received per flowing barrel.
Sale prices, however, can vary. Range's production was roughly 10 per cent natural gas liquids, like propane, butane and ethane, the analyst noted. Companies have been seeking assets rich in these byproducts as the price of natural gas remains in the gutter.
"It is a big deal in that it could get the market comfortable that Encana can continue to spend at their current pace going in to 2012, even with commodity prices where they are," said the analyst, who did not have permission to speak on the record. "It is not a big deal if it is [an] $800-million [deal]on a company with an enterprise value of [about] $27-billion."
The market lost faith in the company when its $5.4-billion joint venture with PetroChina International Investment Co. Ltd. crumbled at the end of June. Calgary-based Encana shed credibility when it could not close the deal – one which would have significantly helped its balance sheet and bolstered growth plans.
Encana expects the Barnett deal to close in late 2011 or early 2012. It wants to raise between $1-billion and $2-billion through asset sales this year, and is currently at about $450-million, the analyst noted.
Jim Jarrell, a managing director at ITG Investment Research in Calgary, said potential buyers would have to be optimistic about gas prices and their operating acumen to make these assets attractive. Encana has slowed drilling activity in the zone, and production has been falling since 2008. Natural gas would have to trade at around $5 per thousand cubic feet on the New York Mercantile Stock Exchange in order to break even, he said. Buyers would have to believe that they can lower costs or that gas prices will rally to make it work.
"I don't think it is a homerun property," Mr. Jarrell said.