EnCana Corporation (ECA - Analyst Report) has 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. The deal has been settled at approximately C$220 million.
Per the agreement, Enbridge will acquire 52% interest of the British Columbia located facility that has regulatory approval for processing 800 million cubic feet per day (MMcf/d).
EnCana acts as the operator of the plant that serves producers in the Horn River natural gas play. Construction of the first phase of the natural gas processing plant is about 70% complete, with a planned capacity of about 400 MMcf/d. The unit is expected to come online in the third quarter of 2012.
Following the completion of the second phase of development, the Horn River located plant will exhibit a total processing capacity of 800 mmcf per day. Start-up of the second phase is slated for the third quarter of 2014.
This deal with Enbridge forms a part of EnCana’s strategy to divest low profit generating assets and focus on its lucrative core business of growing natural gas and liquids production. In this respect, the company announced plans to sell a portion of its Piceance natural gas midstream assets in Colorado to an undisclosed private buyer, in mid-September. Earlier this year, EnCana sold its Colorado-based natural gas processing properties to Western Gas Partners, LP (WES - Snapshot Report) for $303 million.
EnCana believes that total proceeds of C$1.1 billion from the sale of three midstream asset – including the Cabin sale – will strengthen its balance sheet and render greater financial flexibility in 2012.
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 believe EnCana has a well diversified high quality portfolio of natural gas assets across Canada and the U.S. The company is also characterized by its strong financial health, an active hedging policy and a competitive cost structure.
However, the current unfavorable macro backdrop along with a weak business profile of the company keeps us concerned. 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.