Encana's deal shouldn't surprise anyone

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Executives at Encana Corp. know they can't wait for natural gas prices to rebound before getting serious about creating value, so they readily concede that their company must develop its assets at a much faster growth rate.

For that very reason, the deal with PetroChina International Investment Co. Ltd. shouldn't surprise anyone, Encana president and chief executive officer Randy Eresman said on a conference call Thursday. He quickly points out that last March he told investors he was looking to strike partnership deals worth $1-billion to $2-billion per year for the next five years.

The new joint venture simply accelerates that plan.

That the deal was made with a Chinese company is practically par for the course after Sinopec paid $4.65-billion (U.S.) for a 9 per cent stake in Syncrude and China Investment Corp. sidled up to Penn West Energy Trust. In fact, the Chinese interest is good news for Canada, which has a healthy amount of gas assets. South of the border, technological innovation has allowed gas explorers to tap areas they never thought could be reached, and that's turned some of the highest cost drilling into mid- to low-cost basins.

It is still unclear, however, what exactly Encana will do with the money. Some of it will be sunk into infrastructure to speed up the development pace, but no specifics have been provided and things like share buybacks have not been ruled out. More details are expected upon closing.

What Encana does with the money will also depend on how PetroChina pays. Mr. Eresman acknowledged that his partner doesn't have to pay up front and that a portion of the total can be deferred. If that happens, the $5.4-billion price tag may actually drop after discounting cash flows.

Mr. Eresman did not disclose much on his relationship with his new partner, but he did point out that in joint ventures like this one, "the biggest issues is always about the pace of development and the respective size of the capital program."