Encana-China gas deal falls through
Shares in Calgary-based Encana Corp. fell Tuesday after it announced talks have ended with a subsidiary of PetroChina Ltd. over a proposed $5.4 billion joint venture to tap natural gas in the Cutbank Ridge region of B.C.
Its stock closed down 41 cents, or 1.4 per cent, at $29.06 on the Toronto Stock Exchange.
Encana announced in February it had reached a tentative joint venture deal after nine months of negotiations. Had the arrangement been made final, it would have been China's largest investment in the Canadian oil industry.
The two failed to agree on the terms for a joint operating agreement. Encana will now look at finding other partners and finding buyers for the pipeline facilities in the area.
"After close to a year of exclusive negotiations with PetroChina, we were unable to reach alignment on the planned transaction," CEO Randy Eresman said in a statement.
"We have determined that the best way for us to advance our plans to unlock value from our Cutbank Ridge business assets is to offer up a variety of joint venture opportunities for portions of the undeveloped resources, and, separately, to examine a transaction with respect to our midstream pipeline and processing assets in the area," he said.
Bad news for share price
"There were a number of parts in that we were unable to reach agreement on, so the conclusion was we end discussions," said Encana spokesman Alan Boras.
Boras could provide no further details, due to a confidentiality agreement.
The announcement is bad news for Encana's share price, said CIBC World Markets analyst Andrew Potter.
In a note to clients, Potter said he had expected Encana buy back $2 billion to $3 billion of its own stock, which would have boosted its share price, while keeping its balance sheet in good shape.
"While EnCana's balance sheet is still reasonable, the company is unlikely to pursue as sizable of a buyback, which is negative in our view.
Additionally, failure to close this transaction will impact perception of management credibility," Potter said.
'Complete and utter failure'
John Stephenson, portfolio manager with First Asset Investment Management in Toronto, called the scuttled deal "a complete and utter failure."
"I think they just couldn't agree on anything and I think they were premature maybe in announcing this before they had an operating agreement in place," he said.
"I think that's going to reflect poorly on (Encana) and I think investors are going to be just a little more cautious. I don't see this as a positive in any way."
But Lanny Pendill, an energy analyst with Edward Jones in St. Louis, commended Encana for its discipline.
Its willingness to walk away from a deal after a year of work shows "if push comes to shove, they're going to make the decision that's in the best interest of Encana and Encana shareholders," Pendill said.
With files from The Canadian Press