DBRS Comments on Encana Corporation’s JV with PetroChina Subsidiary

DBRS notes that Encana Corporation (Encana or the Company, rated BBB and R-2 (middle), Stable trends) announced on December 13, 2012, that it has entered into a joint venture agreement (JV) whereby Phoenix Duvernay Gas (Phoenix), a wholly owned subsidiary of PetroChina Corporation (PetroChina), will invest approximately $2.18 billion in exchange for 49.9% of Encana’s interest in approximately 445,000 acres in the Duvernay formation of Alberta, Canada. Encana will operate the assets. The transaction closed on December 13, 2012.

Proceeds from the transaction come in the form of approximately $1.18 billion in cash upon closing, with the remaining $1.0 billion payable over four years in the form of a capital carry. The carry will fund 50% of Encana’s capital requirements in the play, and is expected to be fully realized in four years.

Upon closing of the transaction, DBRS estimates Encana’s cash position to be approximately US $3 billion (versus approximately US $2 billion as at September 30, 2012), strengthening its liquidity profile.

DBRS assumes that proceeds from future asset sales and joint ventures will continue to fund a significant portion of future capital spending, ensuring leverage and liquidity will remain consistent with the current rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Oil and Gas Companies (April 2011), which can be found on our website under Methodologies.