* Shares jump 5 percent, despite weak results
* Industry minister studying PetroChina deal
* Joint venture seen as strategy to avert challenges
* Q4 operating EPS $0.09 vs $0.50 a yr-ago
* Net loss $42 mln vs yr-ago profit of $233 mln (Adds CEO, analyst comments; in U.S. dollars unless noted)
By Jeffrey Jones
CALGARY, Alberta, Feb 10 (Reuters) - Encana Corp's (ECA.TO) shares surged 5 percent on Thursday as investors wagered its C$5.4 billion ($5.4 billion) gas deal with PetroChina (0857.HK) would boost profits and lead to a string of similar ventures.
Encana, Canada's largest natural gas producer, is selling half of its holdings in the prolific Cutbank Ridge shale gas region of northeastern British Columbia to the state-owned energy company.
The 50-50 venture, announced on Wednesday, is the largest foreign gas deal by a Chinese company. It fits neatly with recent investments in North America in which state-owned companies seek to avoid regulatory or political wrangles by entering partnerships, rather than proposing takeovers.
The deal will enable Encana to accelerate output while containing development costs at one of its core properties. That would help the company cope with weak North American natural gas prices and expectations for more of the same.
Encana blamed low prices on Thursday for an 82 percent drop in operating earnings in the quarter. But its shares surged C$1.37 to C$32.02 on the Toronto Stock Exchange.
"If it wasn't for this joint venture, the stock would be down, that's for sure," Canaccord Genuity analyst Phil Skolnick said. "It's big and it's positive."
Chinese companies have also invested heavily in Canada's oil sands sector, with Sinopec's Corp's (0386.HK) $4.65 billion purchase of a stake in Syncrude Canada Ltd last year leading the league table.
Again, the preferred strategy is to limit participation to minority stakes or joint ventures, instead of risking a losing battle over control of a sensitive Canadian resource.
The failed $39 billion takeover bid for Potash Corp (POT.TO) by Australia's BHP Billiton's (BHP.AX) showed how political worries can scupper a takeover plan, said Gordon Houlden, director of the University of Alberta's China Institute and a former Canadian diplomat in China.
"There are several elements missing here from the Potash arrangement that made it so incendiary," he said. "There's no complete control of a corporation; these are assets in the ground; it's a shared arrangement; you don't have headquarters issues; and you don't have the flagship company of a whole province."
Houlden expects the pace and size of Chinese acquisitions in Canada to grow.
Industry Minister Tony Clement said he is studying the Cutbank Ridge transaction to see how Canadian foreign investment rules apply. Ottawa has not rejected any energy deals.
Chinese companies are hunting for reserves worldwide in a quest to triple gas use in the growing economy in the next decade. To that end, the Encana deal could bolster efforts to establish a North American liquefied natural gas export industry.
"In the longer term, they have expressed a desire to be involved in the North American LNG market, but we have not discussed any details of that at this point," Encana Chief Executive Randy Eresman told analysts. "We ... think it makes a tremendous amount of sense for that market to be linked to the Asian market."
In New York, PetroChina's American Depositary Receipts fell 2 percent to $133.61. Some analysts said the deal looked pricey for the state-owned company.
Under the agreement, PetroChina can pay part of the price in installments but will likely not decide on that until the deal closes, possibly around mid-year, Eresman said.
The amount surpasses Encana's 2011 capital spending budget, which it has set at $4.6 billion to $4.8 billion.
In the fourth quarter, Encana posted a net loss of $42 million, compared with a year-earlier profit of $233 million.
Operating earnings, excluding one-time and unusual items such as hedging gains and losses, fell to $68 million, or 9 cents a share, from $373 million, or 50 cents, a year earlier.
Analysts, on average, had forecast earnings of 13 cents a share, according to Thomson Reuters I/B/E/S.
Cash flow, an indicator of the company's ability to fund growth plans, slipped to $917 million, or $1.25 a share, compared with $930 million, or $1.24.
U.S. gas averaged $3.97 per million British thermal units in the quarter, down 19 percent from the year before.
Encana said market conditions warrant the conservative budget. In addition, it plans to sell assets worth between $500 million and $1 billion.
$1=$1 Canadian Additional reporting by Euan Rocha in Toronto, David Ljunggren in Ottawa and Bhaswati Mukhopadhyay in Bangalore; Editing by Frank McGurty