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EnCana Corporation (ECA - Analyst Report) will sell some of its midstream assets in Colorado to privately held Summit Midstream Partners LLC. The divestiture deal will fetch EnCana $590 million.  

Mid last month, EnCana stated that its subsidiary Encana Oil & Gas (USA) plans to dispose certain natural gas midstream properties in the Piceance Basin. The company however did not disclose the name of the buyer.

The deal, which is slated to close in the current quarter, involves 260 miles of pipeline and 90,000 horsepower of compression facilities. The assets currently transport about 500 million cubic feet per day of natural gas and serves the Mamm Creek, Orchard, South Parachute production fields near Rifle, Colorado, under long-term contracts.

Additionally, Dallas-based Summit Midstream Partners will set up midstream infrastructure to support EnCana’s expansion of Niobrara activities. The former stated that this acquisition will strengthen its operations in the Rocky Mountains.

This transaction will bring EnCana closer to its targeted $1–$2 billion divesture program for 2011. In this regard, EnCana has embarked upon a strategy of divesting low profit generating assets and expects proceeds from these dispositions to strengthen its balance sheet and render greater financial flexibility in 2012.

Recently, EnCana entered into an agreement with Enbridge Inc. (ENB - Snapshot Report) for the sale of its majority stake at the Cabin Gas Plant in Horn River Basin for approximately C$220 million. Earlier this year, EnCana sold its Colorado-based natural gas processing properties to Western Gas Partners, LP (WES - Snapshot Report) for $303 million.

However, in June, EnCana was unable to finalize its Cutbank Ridge sale deal with PetroChina Co. Ltd. (PTR - Analyst Report). We apprehend that this failure could impede EnCana’s growth initiatives as the proceeds were supposed to support its balance sheet, fund an ambitious capital expenditure program and pay down debt.

Headquartered in Calgary, Alberta, EnCana is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays. This provides the company with a low risk, long-life, and sustainable growth profile.

We are maintaining our long-term Neutral recommendation on the stock. EnCana shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

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