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PetroChina to increase stake in Canada shale gas

CNPC to take $2.2 billion stake in Encana Duvernay

The China National Petroleum Company (CNPC or PetroChina) speeds up acquisitions of interests in Canada with the $2.2 billion offered to the local Encana for stake in the Duvernay oil sand project.

According to the deal reached between the parties, PetroChina will take, through its wholly-owned subsidiary Phoenix, 49.9% share of the Encana Duvernay shale gas field.

EnCana will retain 50.1% interest in the newly created joint venture and will act as the operator for the project and development of the operations. 

This announcement comes just one week after the Canadian Government had released new restrictive rules for foreign companies to acquire major energy interests in Canada in response to China CNOOC and Malaysia Petronas which just proceeded to respective $15.1 billion and $5.2 billion  takeovers on Nexen and Progress Energy Resources.

In the case of Phoenix Duvernay joint venture, the control is to remain in the hands of EnCana so that it should not be submitted to these restrictive rules.

In addition this agreement is about shale gas development and not to the sensitive oil sands.

Anyway Phoenix Duvernay joint venture will be reviewed by the Canada Government in respect with the Investment Canada Act.

Located in the west-center of Alberta, EnCana performed already nine exploratory and appraisal wells in the Duvernay shale gas play.

From these first tests, EnCana estimates Duvernay to hold 9 billion barrels of oil equivalent (boe) of in-place reserves.

But PetroChina and EnCana are confident to revise these estimations upward on the next exploratory campaign due to start in 2013.

PetroChina and EnCana to invest $4 billion in Duvernay

When the joint venture is approved, PetroChina will pay $1.2 billion, then the next $1 billion will be paid on the four following years.

In parallel to the transaction, PetroChina and EnCana are planning to invest $4 billion capital expenditure between 2013 and 2016.

With this acquisition, PetroChina contributes to help China finding a new energy mix where coal should reduce to 60% and natural gas increase to 8% in 2015.

The Duvernay shale gas play is a liquid-rich field which motivated PetroChina to join EnCana in a such large project.

Anyway this investment of $4 billion capital expenditure comes in a context where the gas prices in North America stabilize at ever low levels and the oil prices are also depressed in Alberta.

While the European Brent is listed in London at $109 per barrel, the Western Texas Intermediate (WTI) is traded at $87.5 per barrel in USA and the Western Canada Select (WCS) sets the benchmark for Canada heavy crude oil at its lower level of $45 per barrel.

Never the gap between the Canadian heavy crude oil and the Brent has been that wide.

These Canadian low prices for the gas and more recently for the crude oil result from the significant increase of production reaching 4 million b/d in August.

Since 2000, Canada increased its production by the equivalent of 1.4 million b/d on which Kearl from ExxonMobil and Imperial Oil will add 110,000 b/d on first quarter 2013.

In parallel to this significant increase on the supply side, the demand side in North America did not follow and the infrastructure of pipelines are not yet in place to export overseas.

This context offers to CNOOC, Petronas and now PetroChina the perfect timing to proceed to such large acquisitions while Canadian companies such as EnCana, Nexen, and Progress Energy find a potential way out on the western routes right when the southern ways turn unexpectedly congested.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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