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Encana Closes Cutbank Ridge Deal

Zacks Equity Research

Encana Corporation (ECA) completed the disposition of some of its properties in the Cutbank Ridge area to Calgary-based Veresen Inc. for approximately C$920 million. The sale was announced in early December, last year.

Per the deal, Encana sold its 100% interest in two natural gas processing plants – the Steeprock unit in northeast British Columbia and the Hythe facility in northwest Alberta – and approximately 229.9 miles of associated gathering pipelines. The facilities can process natural gas of up to 516 million cubic feet per day (MMcf/d).

Encana also entered into a long-term competitive gathering and processing fee agreement with Veresen. This pact will enable Encana to conduct the ongoing natural gas development in Cutbank Ridge economically as well as efficiently supply natural gas and liquids to markets.

This disposition forms a part of Encana’s divesture program that is expected to generate total proceeds of about $3.5 billion. In 2011, Encana’s total proceeds from the sale reached approximately $1.1 billion, which was within the projected range of $1 billion to $2 billion.

Of late, Encana completed the sale of its majority stake at the Cabin Gas Plant in Horn River Basin to Enbridge Inc. (ENB) for $215 million. In late December, Encana dispensed with most of its natural gas producing assets in North Texas for $860 million to EnerVest, Ltd.

These transactions highlight Encana’s strategy of reforming its asset portfolio for long-term gains. The company is targeting to divest its low-profit generating assets and focus on the lucrative core business of natural gas and liquids production. Proceeds from these dispositions are expected to strengthen the company’s balance sheet and render greater financial stability in 2012.

Headquartered in Calgary, Alberta, Encana is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays. This provides the company with a low risk, long-life and sustainable growth profile.

We are maintaining our long-term Neutral recommendation on the stock. Encana shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

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