Encana to Offload Piceance Assets

EnCana Corporation (ECA - Analyst Report) intends to sell off some of its midstream assets in Colorado through one of its subsidiaries for $590 million. This move reflects the energy giant’s aim to unload about $2 billion from its vast portfolio this year to cope with a low natural gas price environment.

EnCana USA –– an affiliate of EnCana –– plans to divest a portion of its Piceance natural gas midstream assets in Colorado to an undisclosed private buyer. Proceeds from the transaction – that is expected to close in the final quarter of the year, subject to certain regulatory approvals and customary closing conditions – would strengthen its balance sheet and provide greater financial flexibility in 2012.

The contracted assets comprise of about 260 miles of pipeline and 90,000 horsepower of compression facilities that collect and ship about 500 million cubic feet of natural gas daily. The to-be-sold properties serve Encana’s Mamm Creek, Orchard and South Parachute production in the area around Rifle, Colorado, about 180 miles west of Denver.

The Colorado pact is part of a larger $1–$2 billion divestiture program slated for completion by this year end. The Calgary, Alberta based pure natural gas exploration and production company seems on track to meet or exceed this objective. Upon completion of the latest agreement, EnCana will have $600 million in divestitures — total proceeds of $1 billion, offset by $400 million in acquisitions.

The company also highlighted that it will likely carry out one or more Canadian midstream divestitures this year. Recently, EnCana sold its mature Barnett shale properties in North Texas. Apart from that, other property divestments include portions of Jean Marie in northeast British Columbia and its Carrot Creek assets in Alberta's deep basin.

EnCana is one of the largest natural gas companies in North America with a diverse and high quality portfolio of natural gas assets spread over Canada and the U.S. This provides it with a huge inventory of reserves and a resource base capable of robust production growth. We believe the asset sale program will prove beneficial for the company in streamlining its portfolio and the proceeds would supplement cash flow in the current price environment.

However, EnCana’s inability to secure the PetroChina Co. Ltd. (PTR - Analyst Report) deal, for the sale of half of its prolific Cutbank Ridge shale natural gas assets in British Columbia and Alberta to the Chinese energy giant, will act as a setback for the natural gas supplier, as the proceeds were supposed to help support its balance sheet, fund an ambitious capital expenditure program and pay down debt. As such, we expect the long-term growth potential of the company to be restrained, and rate EnCana shares as Neutral.

The company retains a Zacks #3 Rank, which translates to a short-term Hold rating.

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