Encana Corporation ("Encana") announced today it has reached an agreement with Veresen Midstream Limited Partnership ("Veresen Midstream"), a 50/50 limited partnership of Veresen Inc. and affiliates of Kohlberg Kravis Roberts & Co. L.P. ("KKR"), under which Encana and Cutbank Ridge Partnership ("CRP"), a partnership between Encana and Cutbank Dawson Gas Resources Ltd., a subsidiary of Mitsubishi Corporation, will sell certain natural gas gathering and compression assets supporting Montney development in the Dawson area of northeastern British Columbia. Total cash consideration to Encana under the transaction is approximately C$412 million plus actual costs accrued in 2015.
"We are pleased to expand our relationship with Veresen, and now KKR, with what we believe is one of western Canada's most innovative midstream service structures," said Renee Zemljak, Executive Vice-President, Midstream, Marketing & Fundamentals with Encana. "We are unlocking value from our midstream infrastructure that we can redirect to strategic upstream opportunities while ensuring reliable, efficient midstream service to support our ongoing operations and development in the Montney."
Veresen Midstream will provide gathering and compression services to Encana and the CRP under a fee-for-service arrangement in a dedicated area of mutual interest within the Montney. Veresen Midstream has agreed to undertake up to C$5 billion of new midstream expansion to support development within the Montney, which is a strategic growth asset for Encana. Encana, along with the CRP, plans to invest between US$600-700 million in the play in 2015.
The structure of the agreement reduces Encana's commitments compared to the typical "take-or-pay" fee structure embedded in traditional midstream arrangements. In addition, it increases Encana's financial flexibility and mitigates its exposure to long-term unutilized demand charges. Encana and its partner can make real-time decisions on expansions or delays of projects as necessary to align with its development plans and have the option to include processing as part of the service package.
Encana will continue to operate the related facilities and lead future infrastructure construction on behalf of Veresen Midstream, which will oversee all commercial and other ownership activities. The arrangement includes a competitive fee structure that delivers mutually attractive rates of return and provides Veresen Midstream the incentive to effectively control costs and aggressively pursue third-party opportunities in the basin.
The transaction includes the sale of existing infrastructure comprised of gas gathering and compression facilities located in the Dawson area, consisting of approximately 500 kilometres of pipeline and 675 million cubic feet per day of compression. The transaction is subject to regulatory approval and typical closing conditions, and is anticipated to close in Q1 2015.
Encana Corporation Encana is a leading North American energy producer that is focused on developing its strong portfolio of resource plays, held directly and indirectly through its subsidiaries, producing natural gas, oil and natural gas liquids (NGLs). By partnering with employees, community organizations and other businesses, Encana contributes to the strength and sustainability of the communities where it operates. Encana common shares trade on the Toronto and New York stock exchanges under the symbol ECA.