(EnergyAsia, February 20 2012, Monday) — Japan’s Mitsubishi Corp has agreed to invest C$2.9 billion for a 40% interest in a venture to jointly own and develop Calgary-based Encana Corp’s natural gas lands in the Cutbank Ridge resource play in Canada’s British Columbia province. (US$1=C$0.99).

Holding the majority 60% stake, Encana said it will be the operator and managing partner of the Cutbank Ridge Partnership which holds about 409,000 net acres of Encana’s Montney-formation land in northeastern British Columbia.

Encana said the assets which include the Cadomin and Doig geological formations have total proved undeveloped reserves of approximately 900 billion cubic feet of natural gas equivalent, with initial ‘in place’ reserves of about 130 trillion cubic feet.

The partners plan to undertake long-term development and production of these huge reserves into liquefied natural gas (LNG), mostly for export to Asia.

Encana said the agreement excludes its current Cutbank Ridge production of about 600 million cubic feet of natural gas per day, processing plants, gathering systems and Alberta landholdings.

Mitsubishi Corp will pay C$1.45 billion on closing expected later this month, and will invest a further C$1.45 billion.

It has also agreed to provide 40% of the partnership’s capital investment for an expected five-year period that will reduce Encana’s funding commitments to 30% of the period’s total projected capital investment.

Encana said it has been assembling its expansive Cutbank Ridge lands along the foothills of the Canadian Rockies, straddling the British Columbia-Alberta border for over a decade.

Randy Eresman, Encana’s President and CEO, said:

“This transaction represents the next step towards the long-term development and value recognition of our undeveloped Cutbank Ridge lands in British Columbia — a major natural gas resource capable of delivering long-term, affordable energy supplies to domestic and export markets.
“Cutbank Ridge ranks among the most prolific and lowest-cost resource plays in North America and Mitsubishi’s financial commitment recognises the significant value contained in a portion of our enormous resource opportunity.

“The alignment we’ve already established with Mitsubishi will greatly enhance our plans to maintain Cutbank Ridge’s leadership position among the most cost competitive resource plays on the continent. Despite an increased capital spending profile on these natural gas assets resulting from this transaction, Encana plans to more than offset the near term impact on North American natural gas production oversupply by capital spending reductions elsewhere in its natural gas portfolio.”

Jun Yanai, Mitsubishi Corp’s CEO for its Energy Business Group, said:

“We are excited to join Encana — a first-rate unconventional producer that has pioneered low-cost, continuous improvement and technical innovation across its premium portfolio of North American resource plays. Mitsubishi looks forward to tapping new natural gas supplies for the long-term development and eventual delivery to world markets.”