Further expanding Asia's foothold in the North American shale-gas sector, PetroChina International Investment Co. Ltd., a subsidiary of PetroChina Co. Ltd., Beijing, (NYSE: PTR) has formed a 50/50 joint venture with Calgary-based Encana Corp. (NYSE; Toronto: ECA) for a 50% stake in the Canadian gas producer's Cutbank Ridge gas-rich assets in British Columbia and Alberta.

At a total deal value of C$5.4 billion, the JV is China's largest Canadian upstream transaction ever recorded, based on data compiled by the IHS Herold Global M&A Database.

The transaction metrics are also rich, according to David Tameron, senior analyst at Wells Fargo LLC. "Assuming US$1 billion (gross) for the midstream assets, this equates to US$18,235 per thousand cubic feet equivalent (Mcfe) per day, US$4.65 per Mcfe proved, and US$7,200 per acre," he says in a Feb. 10 research note to clients.

"Metrics can and will be sliced different ways, but the bottom line is, in our opinion, (the) value exceeded market expectations," Tameron adds, also rating the deal as "positive" for another Canadian operator in its coverage universe. Using the Encana-PetroChina JV metrics, the Wells Fargo analyst suggests that this could value Forest Oil's Canadian assets between US$1.2- and US$1.8 billion.

M&A Market Heats Up With Chinese Deals

In North America, Asians accounted for some 10% of total deal value of US$190 billion from 2009 through 2010. And, Asian energy companies will continue to dominate the global upstream M&A market, Scotia Waterous' Adrian Goodisman indicated at a recent IPAA event in Houston.

"The national oil companies driven by the Asians will be the dominant buyers of hydrocarbons around the world," Goodisman said. "They have rapidly moved up the curve in international deal-making."

"Expect to see more of these partnership deals from the Chinese and North American companies, as the Chinese work to meet their need to secure supply," adds Christopher Sheehan, IHS director of energy M&A research. Sheehan notes that securing energy supply, rather than price, was the key driver for PetroChina and the Chinese government in this recent transaction.

Meanwhile, Chinese companies continue to make aggressive M&A investments in the Canadian oil sands and have recently begun moving into the U.S. shales to gain knowledge on how to tap such resources in China--and to capitalize on the shale-gas bounty here, as well.

In June 2010, China's largest state-run oil company China National Petroleum Corp., or CNPC, joined forces with Encana Corp., Calgary, (Toronto, NYSE: ECA) to develop unconventional gas assets operated by the company in northeastern British Columbia for an undisclosed price.

The gas assets involved 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.

Also in June 2010, Encana announced it was 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 says it believes its leasehold can support approximately 23,000 drilling locations during a span of 18 years.

Canada, China Shake Hands Once Again

Encana's Cutbank Ridge assets comprise 635,000 net acres on the British Columbia and Alberta boundary and also include the majority of its Montney, Cadomin and other gas assets on a portion of these properties. Midstream assets consist of some 700 million cubic feet per day of processing capacity, 3,400 kilometers of pipelines and the Hythe gas storage facility.

Daily production from the Cutbank Ridge assets is currently 255 million cubic feet equivalent per day. Providing additional upside to the deal, proved reserves amount to 1 trillion cubic feet of natural gas equivalent.

Per the JV terms, each partner is expected to contribute 50/50 to future development capital requirements, with Encana operating the JV assets and marketing their production.

"By combining resources with PetroChina in this joint venture, we would expect to recognize additional value through accelerating our pace of development and by leveraging increased capital and operating efficiencies through further technical advancements and through greater certainty of the long-term development plan for the business assets," notes Randy Eresman, Encana president and chief executive.

RBC Capital Markets and Jefferies & Co. Inc. are financial advisors, and Burnet, Duckworth & Palmer LLP is legal advisor to Encana.

Contact the author, Nancy Miller, at nmiller@hartenergy.com.