Expanding Asia's foothold in the North American shale gas sector, China's largest state-run oil company China National Petroleum Corp., or CNPC, has signed a memorandum of understanding with Encana Corp., Calgary, to negotiate a potential joint venture to develop unconventional gas assets operated by the Canadian E&P in northeastern British Columbia for an undisclosed price.


The jointly developed gas assets will comprise approximately 275,000 net acres in the Greater Sierra resource play, which includes the Devonian shale formation in the Horn River play; 1.7 million net acres covering the Jean Marie formation; and some 720,000 net acres covering the Montney formation.


Encana will retain operatorship of its developments. CNPC is expected to invest capital to earn an interest in the gas assets, while gaining an understanding of unconventional gas development through an ongoing sharing of technical knowledge.


Encana president and chief executive Randy Eresman says, "The initiative with CNPC has the potential to significantly benefit Canada's economy through increased investment is our three British Columbia natural gas plays. New investments of this nature hold considerable promise for creating jobs and new markets, expanding resource revenues for governments and substantially enhancing the competiveness of Canadian natural gas in North America."


The partnership follows an announced joint venture between Indian conglomerate Reliance Industries Ltd. and Dallas-based Pioneer Natural Resources Co. and its partner Newpek LLC in the South Texas Eagle Ford shale play for approximately US$1.32 billion in cash and drilling carries.


The deal is expected to take up to several months to negotiate.


Encana is targeting annual joint-venture investments between US$1 billion and US$2 billion. The company holds more than 7.5 million net acres of undeveloped land in North America, and believes its leasehold can support approximately 23,000 drilling locations during a span of 18 years.