North American natural gas companies, under pressure to find partners with fat wallets so they can develop their projects, now find it difficult to strike joint ventures because the market is flooded to the point where potential buyers have the power to be picky.
Encana Corp., for example, cannot find an investor for one of its large package of properties in the United States. It is breaking the package into smaller pieces, on the advice of its bankers and potential partners, because no one was prepared to make such a large investment, the company said Wednesday.
Natural gas companies need joint ventures because they cannot afford to expand production on their own. They also need cash injections as their balance sheets become stretched due to low natural gas prices. Without partners, their expansion ambitions will freeze and their finances will be in peril.
"If you're a buyer, you have a lot of different projects to look at," Sherri Brillon, Encana's chief financial officer, said in an interview after the company reported its third-quarter results.
"This isn't specific to Encana. This is just a function of the marketplace and what people are interested in looking at," Ms. Brillon said.
Encana is carving into smaller chunks its 830,000-acre joint venture package in the U.S. containing its Eaglebine, Tuscaloosa marine shale and Mississippian lime plays. Buyers said the package was too large.
Encana has other properties on the joint venture market, including more of its Cutbank Ridge and Duverney projects in Canada.
Encana's spending plans depend on joint ventures. Despite speed bumps in the U.S., chief executive officer Randy Eresman said on Wednesday's conference call that he has a "high degree of confidence" Encana will "meet or exceed" the company's 2012 divestiture target of between $3-billion. In 2013, Encana wants to strike between $1-billion and $1.5-billion worth of sales and joint ventures.
Meanwhile, U.S. federal and Michigan authorities are still investigating allegations of collusion, Ms. Brillon said, declining to elaborate. The allegations are tied to land auctions in Michigan, where Encana allegedly co-ordinated with Chesapeake Energy Corp. to keep prices low.
Dan Cristall, the global head of oil and gas banking for Macquarie Group, expects the North American joint venture market to become even tougher.
"The number of packages going to market in the U.S. is going to be quite dramatic this year," he said. "As well as in Canada."
Asian companies have been touted as saviours for North American energy firms, and were expected to snap up as many assets as they could in order to meet demand in their home countries.
But Mr. Cristall said the frenzy of interest has waned as Asian firms become more familiar with the North American market. Liquefied natural gas exports was part of the draw, but those projects are just in development stages.
"There's still some confusion and concern around gas takeaway capability off of our coast and what's going to happen with LNG," the Calgary-based investment banker said. "There are questions around pipeline and just in general around pricing."
Further, some Asian buyers have already made major acquisitions and are not ready to tackle another large investment.
"We're starting to see some Asian buyers driving harder bargains," Mr. Cristall said.
Encana lost $1.24-billion (U.S.) or $1.69 a share in the third quarter, compared with a profit of $459-million or 63 cents in the same quarter last year. It was dinged with $1.2-billion in after-tax non-cash charges.
Operating profit , however, came out in the black. Encana's operating profit totalled $263-million or 36 cents a share, down from $389-million or 53 cents in the same frame last year.
(Editor's note: An earlier online version of this story misspelled the surname of Encana chief financial officer Sherri Brillon. This version has been corrected.)