CALGARY — Encana Corp. said Thursday it is looking to sell its shale natural gas lands in northern Texas in order to focus on some of its more promising properties elsewhere in North America.
The Calgary-based energy giant (TSX:ECA) has been active in the Barnett Shale — often thought of as the birthplace of unconventional natural gas drilling — since 2004.
“Given the other opportunities we have, we determined that this is one that may have greater opportunities in other people’s hands,” said Encana spokesman Alan Boras.
Encana is looking to grow production from the Haynesville region of Louisiana and Texas, as well as the Horn River Basin and Montney formations in northeastern British Columbia.
“We’re going to focus our energies on our higher growth properties that are at earlier stages of development and have more opportunity for growth,” said Boras.
Shares in Encana dropped 3.7 per cent to $23.98 in afternoon trading on the Toronto Stock Exchange.
The Barnett sale process is part of a wider divestiture program that aims to raise up to US$2 billion. The company has also put gas processing assets on the sale block, and is seeking partners to invest in some of its less developed areas.
Encana had been hoping for a $5.4-billion injection of cash through a partnership with PetroChina in northeastern British Columbia. However, that deal fell through in June as the two parties failed to see eye-to-eye on how the assets would operate.
That may be one reason Encana is looking to raise cash through divestitures, said Ed Kallio, director of gas consulting at Ziff Energy Group.
“I think it’s also partly a function of very low gas prices,” he said.
The Barnett — where Encana and other players honed the horizontal drilling and hydraulic fracturing techniques that are ubiquitous today — is not the best place for Encana to put its money, said Kallio.
“It’s a mature area and the sweet spots have been drilled out,” he said.
“And so you’re into the kind of marginal parts of the play now to grow production, and those marginal parts of the play are higher cost, because they yield less gas per well.”
Full-cycle production costs in the Barnett are around US$5 per 1,000 cubic feet. With benchmark natural gas prices sitting below US$4, it’s hard to make the economic case for staying there.
Encana’s Barnett properties currently produce about 125 million cubic feet equivalent per day of natural gas, which Kallio said is “nothing” for a company that size.
“But for a small company, that’s sizable,” he said.
“There will be smaller, mid-sized companies that will pick up the scraps from the majors, and feel that there’s enough meat left on the bone that they can make money.”
The sale, which is being handled by Scotia Waterous, is expected to close later this year or early 2012.
Encana acquired the Barnett properties just as new drilling techniques were reviving what many had written off as a tapped-out resource.
In the Barnett, companies tested out horizontal drilling and multi-stage fracturing to draw natural gas out of the shale rock. In the years since, Encana and its peers have used the same technology on formations from northeastern B.C. to Louisiana, spurring enormous growth in North American natural gas supplies.
That bonanza has had a downside, though. For years, North America has been awash in natural gas supplies, dampening the price of that commodity. Encana is one of several firms to look at shipping natural gas off the West Coast to Asian markets, where the gas can fetch a much better price.
Encana, which spun off its oil assets into Cenovus Energy Inc. (TSX:CVE) in 2009, is one of North America’s biggest natural gas producers, with assets in Western Canada and throughout the United States.