Encana Corporation and China National Petroleum Corporation (CNPC) have signed a memorandum of understanding, formally called a Heads of Agreement, that outlines a framework for the two companies to negotiate a potential joint-venture investment in the development of certain lands in Encana's natural gas plays in Horn River, Greater Sierra (Jean Marie formation) and Cutbank Ridge (Montney formation) in northeast British Columbia.

Accelerating value creation from Encana's enormous resource potential "Given the depth of our enormous unconventional natural gas resource portfolio, we are accelerating our organic growth rate and targeting a doubling of our production per share over the next five years. Beyond our internally-funded capital investments, we have an extensive joint-venture program that helps accelerate value recognition across our North American resource portfolio. With this potential CNPC joint venture, we would expect, upon successful completion of a transaction, to lower costs, reduce risks, increase our capital efficiencies, improve project returns, optimize production techniques and tap natural gas opportunities that would otherwise remain dormant for some time," said Randy Eresman, Encana's President & Chief Executive Officer.

Enhancing competitiveness of Canadian natural gas "Recent breakthrough technologies are transforming North America's energy future by opening vast new supplies of clean burning natural gas, particularly in U.S. shale gas plays. This initiative with CNPC has the potential to significantly benefit Canada's economy through increased investment in our three British Columbia natural gas plays. New investments of this nature hold considerable promise for creating jobs and new markets, expanding resource revenues for governments and substantially enhancing the competitiveness of Canadian natural gas in North America," Eresman said.

Targeting to increase the current joint-venture investment levels In the past three years, Encana has attracted commitments of more than US$4 billion of joint-venture capital through multiple agreements in Canada and the United States, of which about $900 million is to be invested in 2010. Encana is targeting annual joint-venture investments of between $1 billion and $2 billion. A joint venture with CNPC could contribute significantly towards achieving that investment target.

Joint venture framework In the Heads of Agreement signed at the Fairmont Chateau Laurier in Ottawa, Encana and CNPC stated that they "believe the full-scale partnership and cooperation will bring a win-win situation and help to realize the business goals of each" company and they "intend to jointly and comprehensively develop the natural gas value chain business in Canada." Under a potential joint venture, Encana would be the operator of all developments, meaning it would drill and complete the wells, build the processing facilities and pipelines and conduct all field work for the joint venture. CNPC would invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge. The companies expect that it will take several months to negotiate a potential joint venture, which would be subject to typical conditions precedent, including the negotiation of acceptable terms and conditions, receipt of the Encana Board of Directors' approval of the final terms of the proposed joint venture and receipt of any necessary regulatory approvals.

Tags: China National Petroleum Corp., EnCana Corporation