* Subsidiary of Japanese automaker gets 32.5 pct royalty
* Encana's second deal with a Japanese firm in two months
* Keeps developing field with less balance sheet risk
By Jeffrey Jones
CALGARY, Alberta, April 20 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
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
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
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.
They are fee lands, meaning that Encana does not pay
royalties to the provincial government on production.
The region contains 480 billion cubic feet equivalent of
proved plus probable gas reserves, Encana said.
Toyota Tsusho said part of the attraction is that the
Horseshoe Canyon wells do not produce water with the methane,
reducing environmental concerns as well as extra processing
For Encana, the transaction is positive, but it will not
have a major impact on its overall finances, CIBC World Markets
analyst Andrew Potter said. He said in a research note that the
price reflects a stronger natural gas price than today's,
especially since the production does not have medium-term
liquefied natural gas potential such as assets in British
Encana shares were off 1 Canadian cent at C$17.99 on the
Toronto Stock Exchange at midday on Friday. They have lost about
14 percent of their value in the past month.