by Claire Poole | Published December 9, 2011 at 9:45 AM
Canadian energy infrastructure company Veresen Inc. on Wednesday agreed to buy Encana Corp.'s midstream gas gathering and processing plants in Alberta and British Columbia for C$920 million ($909 million), the final major disposal in Encana's divestiture program to shore up its balance sheet and provide funds for other projects.
The assets encompass the Hythe/Steeprock complex in the Cutbank Ridge region. The plants process natural gas from the Montney, Cadomin and other formations in the area and have a combined capacity of 516 million cubic feet per day and include 370 kilometers of gas gathering lines. The Hythe plant processes sour and sweet natural gas and the Steeprock processes sour gas.
"This transaction establishes a high-quality, independent natural gas midstream business for Veresen which we expect will generate attractive returns and make a significant contribution to our cash flow," Veresen CEO Stephen White said in a statement. "The Hythe/Steeprock complex is strategically located in the heart of a high-growth region focused on Montney drilling, and is underpinned by a competitive, long-term gathering and processing fee agreement with an outstanding producer partner in Encana."
Calgary, Alberta-based Veresen plans to pay for the acquisition with C$303 million in financing and expects to close the deal in the first quarter after it receives regulatory clearance.
Veresen and Encana have entered into a long-term deal in which Encana, also based in Calgary, will supply the plants with natural gas. After a transition period, Veresen will operate the two plants, whose employees will continue working, Veresen said.
Encana's cash flow has been suffering from low natural gas prices and a failed deal to sell interests in northeastern British Columbia and Alberta to PetroChina Co. Ltd. as part of a joint venture deal for $5.5 billion because of operational disagreements. Last month, Encana agreed to sell its North Texas natural gas properties in the Barnett Shale to EnerVest Ltd. of Houston for $975 million. It has also sold other U.S. energy assets and some gas plant businesses in Canada. "This sale agreement marks the conclusion of the major components in our 2011 divestiture program, which, upon closing of all transactions, will result in proceeds of about $3.5 billion," Encana CEO Randy Eresman said in a statement. "Although not all of our announced transactions will be completed this year, the expected proceeds will help us achieve our 2011 target range for net divestitures of between C$1 billion and C$2 billion."
Veresen owns pipelines, gas liquids plants and gas-fired power plants across North America, including interests in the Alliance Pipeline and the Alberta Ethane Gathering System and energy systems in Ontario and Prince Edward Island.