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Penn West to develop B.C shale with help from Japan's Mitsubishi
By Lauren Krugel, The Canadian Press

CALGARY - Penn West Energy Trust is enlisting the help of a major Japanese investor to speed up development of its British Columbia natural gas holdings, marking the latest in a series of similar farm-out deals.

"It is Penn West's view that the joint venture will accelerate the exploration and development of this significant unconventional gas asset," the company said in a release Tuesday.

The Calgary-based oil and gas trust (TSXWT.UN) said it is forming a 50-50 joint venture with a unit of Japan's Mitsubishi Corp. to exploit its northeastern B.C. gas properties.

Earlier this year, Penn West struck a big deal with a Chinese company to help fund development of the trust's oilsands project in the Peace River area of northwestern Alberta.

Tuesday's transaction with Mitsubishi centres on a shale formation in the Cordova Embayment area, as well as conventional producing gas properties in the Wildboy region.

Mitsubishi, Japan's largest general trading company, will commit $850 million to the joint venture — $250 million in cash to acquire a half stake in the assets and $600 million for capital and development funding.

"This agreement is the foundation for a long-term relationship with (Mitsubishi), who has world-wide experience in major project development," Penn West said.

Tuesday's deal is a continuation of a trend that has been taking place south of the border for some time, said Acumen Capital Partners analyst Rob Cooper.

For instance, Oklahoma-based Chesapeake Energy (NYSE:CHK) is working on its Texas shale holdings with French energy giant Total SA. Pioneer Natural Resources (NYSEXD) announced a deal in June with a subsidiary of India's Reliance Industries, also in Texas shale.

The joint ventures give the foreign companies an "attractive entry point" into North American resources, said Cooper.

"If you're to believe natural gas is ultimately going to be the fuel of choice in North America — given it's cleaner and it's abundant at these levels — then that's where you'd want to be," he said.

For the Canadian or U.S. producers, the foreign funds turn what used to be a "hope and a dream" into reality.

"Instead of moving in a much more measured pace, you can get relatively attractive terms and bring a lot of that potential value forward from the future to the present," he said.

UBS Investment Research analyst Matt Donohue said the announcement came as no surprise.

"We like the deal as it does alleviate further debt from (Penn West's) balance sheet while enabling the trust to aggressively develop and focus on its suite of large oil in place assets, while enabling Wildboy to be developed more aggressively," he wrote in a research note.

In June, Penn West announced a $1.25-billion investment from Chinese sovereign wealth fund China Investment Corp. to help develop the trust's Peace River oilsands project.

CIC agreed to buy $435 million worth of Penn West units and invest $817 million in a joint venture at Peace River.

Penn West will hold a 55 per cent interest in the oilsands joint venture and will operate the project, which includes 96,000 hectares of oilsands leases in northern Alberta.

Penn West, known mainly for its vast conventional oil holdings in Western Canada, was unable to pursue that project on its own. As an income trust, a large portion of its cash is funnelled off to investors rather than growth projects.

Natural gas giant Encana Corp. (TSX:ECA) has also proven itself to be a big fan of joint-venture deals. Over the past three years, it has attracted more than $4 billion in third-party capital, and has said it aims to bring in between $1 billion and $2 billion per year in the future.

Encana is working on a deal to team up with China National Petroleum Corp. to develop some of its shale natural gas holdings in northeastern British Columbia.

In March, it signed an agreement with Korea Gas Corp. that saw the Asian company buy a 50 per cent stake in properties in the promising Horn River Basin and Montney shale gas plays in northeastern B.C.

The oilsands are another area where similar joint-ventures work well. For example, Athabasca Oil Sands Corp. (TSX:ATH) got a big boost last year when PetroChina bought a 60 per cent stake in two of its oilsands projects.

"Anywhere where you have a huge capital commitment and you're currently constrained, how do you bring some of that value forward?" Cooper said.

http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b4292537