Toyota Tsusho to invest C$602 million in Encana field

Fri Apr 20, 2012 1:46pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Toyota Tsusho Corp, the Japanese trading company, will buy a stake in Encana Corp's massive coalbed methane field in southern Alberta for C$602 million ($608 million).

The deal, announced on Friday, is the latest installment in Canadian gas producer's drive to get third parties to inject cash into its operations as prices for natural gas hit decade lows.

Encana said Toyota Tsusho, one of the Toyota Motor Corp group of companies, paid C$100 million up front and will invest about C$502 million over seven years to buy a 32.5 percent royalty interest in the Horseshoe Canyon formation, where production is currently around 120 million cubic feet a day.

It is the second such deal between a Japanese company and Canada's largest gas producer in slightly more than two months. In February, Encana agreed to sell a 40 percent interest in British Columbia gas assets to Mitsubishi Corp for C$2.9 billion as a way to accelerate development, while protecting a balance sheet under pressure from low gas prices.

Encana is hunting for partners to help fund development of a host of other assets as well, including up to five in the United States and Canada with potential for higher-value liquids-rich gas. Such deals could mean around US$2 billion in combined cash proceeds and carried development spending for the Calgary-based company, analysts have said.

Under Friday's deal, Toyota Tsusho will get an interest in 4,000 wells and 1,500 drilling locations on 480,000 net acres, which represent about a quarter of Encana's coalbed methane acreage.

Being a dry gas play, Encana had not devoted a large part of its 2012 capital spending to Horseshoe Canyon, spokeswoman Carol Howes said. Early this year the company stopped spending and even shut off some production in response to depressed prices.

"These funds really allow us to maintain the ongoing program," Howes said.   Continued...