Encana divests West Slope midstream assets

A leading natural gas producer has announced the sale of a portion of its pipelines and compression facilities in Western Colorado.

Encana Oil & Gas expects to close on the $590 million transaction later this year as part of ongoing efforts to divest so-called midstream assets to raise capital for other production operations.

According to a news release from Encana, the company will sell about 260 miles of pipeline and 90,000 horsepower of compression facilities in the Piceance Basin. Built over the last decade, the pipeline and compression facilities gather and transport about 500 million cubic feet of natural gas a day and serve the Mamm Creek, Orchard and South Parachute production areas near Rifle.

Encana didn’t disclose the name of the buyer, but instead identified it as a private midstream company. Midstream assets and operations involve gathering, processing and transporting natural gas.

Earlier this year, Encana sold a natural gas processing plant and several gathering systems near Fort Lupton on the Front Range of Colorado for $303 million to Western Gas Partners.

“This Piceance divestiture represents our second successful step in capturing significant unrecognized value from our midstream assets,” said Renee Zemljak, executive vice president of midstream, marketing and fundamentals at Encana.

With divestitures of $1 billion and acquisitions of $400 million, net divestitures for Encana will stand at about $600 million after the Piceance Basin sale.

Randy Eresman, president and chief executive officer of Encana, said the company plans $1 billion to $2 billion in divestitures by the end of the year. In addition to midstream assets, the company has announced plans to sell producing properties in Texas and Canada. “These proceeds will strengthen the company’s balance sheet, providing greater financial strength and flexibility going into 2012,” Eresman said.

Zemljak and Eresman said the divestitures of midstream assets involve long-term fee agreements that provide cost stability for natural gas production. The divestitures also generate capital to invest in production at a time when abundant supplies have kept prices for natural gas low, but prices for oil and natural gas liquids have increased.