TORONTO (AP) — A subsidiary of China's state-owned PetroChina and Canada's Encana Corp. have entered into a multibillion dollar joint venture agreement to explore and develop shale natural gas in Alberta, the Canadian oil and gas company said Thursday.
Encana said the PetroChina subsidiary, Phoenix Duvernay Gas, will invest $2.21 billion for a 49.9 percent interest in about 445,000 acres (180,000 hectares) Encana has in the emerging Duvernay formation.
The deal comes just days after Canada's Prime Minister Stephen Harper said it's "extremely unlikely" his government will allow any more foreign takeovers in the oil sands sector by state-owned companies after approving China's CNOOC's $15.3 billion takeover of Calgary-based Nexen Inc. Once finalized, it will be China's largest overseas energy acquisition.
The government, however, said it would welcome joint ventures by state-owned companies or investments that didn't constitute a controlling interest.
"I think Prime Minister Harper was clear that Canada was still welcoming foreign investment," said Geoff Hill, a partner at Deloitte's Calgary's office. "Where he was also clear was that control and complete ownership, especially by (foreign) state-owned enterprises, would be much more difficult."
Encana said it will remain the operator of the Duvernay joint venture, which will see the partners together spend $4.06 billion on drilling, completion and processing facilities over the next four years.
Encana estimates that the Duvernay joint venture lands contain about 9 billion barrels of oil equivalent petroleum.
"Phoenix's investment demonstrates the tremendous value that Encana has created ... and enables us to accelerate the pace at which the full production potential of our Duvernay lands can be achieved," Encana president and CEO Randy Eresman said in a statement Thursday.
PetroChina has already paid $1.20 billion to Encana, with the remainder being stretched over the next four years to carry half of Encana's share of development capital.
"This joint venture will build a foundation for the successful development of the Duvernay play and help to diversify our business portfolio," said Pheonix CEO Zhiming Li. "Encana is our ideal long-term partner for the development of our future natural gas business."
Encana shares rose 47 cents to $20.91 in Thursday afternoon trading on the Toronto Stock Exchange.
Encana and PetroChina began working on another natural gas joint venture in 2010— a $5.48 billion joint-venture deal for Encana's lands in the Montney region— but that deal fell apart in mid-2011 after they failed to agree on how that project would operate.
While Encana has been inking several joint venture deals in recent years so that it can develop its huge resource base more quickly, big state-owned Asian energy companies have also increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel their economies. Chinese companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by U.S. lawmakers who cited national security fears.
Harper has in fact lobbied China to invest in Canada's energy sector in recent years, saying billions in foreign investment are needed to develop Canada's vast oil and gas deposits.
The government has also recently approved the takeover of Canada's Progress Energy Resources Corp. by Malaysian state-owned firm Petronas.