Deals of the Week: Mitsubishi Enters Major Montney JV in Canada with Encana

In Mitsubishi, Encana has found a partner to fill the void left last year by PetroChina in its Cutbank Ridge asset, after the previous deal stumbled over a failure to agree on certain terms in the transaction. Rather than being a like for like copy of Petrochina’s $5.4 billion deal to acquire a 50% interest in Encana’s Montney shale play asset, Mitsubishi will be acquiring a 40% interest in just a portion of the undeveloped acreage, containing 409,000 acres and no production, for C$2.9 billion. According to Evaluate Energy’s new Shale database, the deal will make Mitsubishi the top Asian acreage holder in the play with 163,600 net acres, ahead of KOGAS with 129,000 net acres and Petronas with approx.75,000 net acres.

The deal is a coup for Encana who have replaced one deal that included producing assets, pipelines and storage facilities for $7,700 per acre (unadjusted), with one that only includes undeveloped acreage for C$17,700 per acre. The terms of the deal are all the more impressive once the change in the gas price is taken into consideration, with the Petrochina deal struck when the Henry hub was trading at $4.22 per mcf, compared to the price on the day of Mitsubishi’s deal of just $2.67 per mcf. The Henry Hub price is fairly inconsequential however for this deal, with the majority of production surely destined for the Asian markets via the major gas exporting hub that it being built up in Kitimat on Canada’s western coast near Vancouver. The deal announcement gave Encana’s share price an immediate  5% boost, but the gains were soon tempered by Encana’s announcement of their 2011 earnings, which barely registered a profit following $1.3 billion of impairments, in what may be a common theme in the coming weeks for gas weighted North American companies.

CVR Energy received an unsolicited takeover offer from its largest holder Carl Icahn, who currently holds a 14.5% interest in the US refining and fertilizer company. Icahn had already spoken of his discontentment with the current share price of CVR Energy and although his offer represents just an 8.7% premium on the day prior trading price, Icahn is offering a further incentive of a bonus to shareholders should he succeed in finding another buyer within 9 months. The EV to EBITDA ratio for CVR for the latest financial period (Q3 2011) gives some credence to Icahn’s view that the company is undervalued, with a multiple of just 2.5 compared to the typical EBITDA multiple for US refiners of 5-6 just 2 years ago. Using this multiple however suggests that CVR isn’t any more undervalued than its refining peers, such as Marathon Petroleum (multiple of 1.9), Valero Energy (multiple of 1.9) or HollyFrontier (multiple of 1.3). And the refinery industry being “undervalued” hasn’t stopped Hess Corp’s Hovensa joint venture being permanently shut down due to poor returns, or Swiss refiner Petroplus recently going bankrupt.

ConocoPhillips furthered its asset divestiture program this week, with a $1.3 billion sale of its Vietnamese assets to private company, Perenco. The deal is by far the largest to date for Perenco and due to the non-disclosure of Perenco’s financial accounts, it’s unclear whether the deal will be financed through debt or existing cash. The assets will contribute close to 20,000 boe/d and will include pipelines and interests in fields that are yet to reach their full plateau production, such as the Golden Lion project, in which Perenco will become the second largest shareholder behind PetroVietnam.

Crescent Point Energy continued its aggressive acquisition program with the announcement of two deals in Canada. The larger of the two was a C$427 million acquisition in the company’s core operating area of the Saskatchewan Bakken from PetroBakken Energy. The second concerned a C$130 million deal in Manitoba, a province in which Crescent Point had only limited exposure to before this deal. Both acquisitions are heavily weighted towards oil, contain producing assets with additional drilling locations and accumulated tax pools. The transactions bring Crescent Point’s spending on acquisitions for the year to $1.2 billion, just short of the $1.3 billion the company spent in 2010 and half of the $2.4 billion total in 2009.

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