EnCana's sale casts Arctic chill on pipeline plan

CALGARY -- EnCana Corp. is selling its holdings in the Mackenzie Delta and the Canadian Arctic, suggesting that there is fading optimism among industry leaders that the proposed Mackenzie Valley natural gas pipeline will ever get built.

Anadarko Petroleum Corp., BP PLC and Chevron Corp. are among the other major firms selling or reducing their holdings in the North.

EnCana hired CIBC World Markets Inc. as its financial adviser and will distribute confidential information to potential buyers in early October. The key asset is Umiak, near the town of Inuvik, where EnCana discovered natural gas in 2004 and 2005.

The company said it is selling because exploration in the Delta does not fit with its strategy in British Columbia, Alberta, Colorado and Texas.

"This type of exploration is a bit of an anomaly [for us]," said Alan Boras, an EnCana spokesman.

A pipeline link from the Mackenzie Delta to northern Alberta, intended to deliver natural gas from three huge discoveries, was first proposed in the 1970s. Imperial Oil Ltd., the main proponent, resurrected the plan this decade but costs have soared to $7.5-billion from $5-billion and the company is now working on a new budget, expected by some analysts to reach $9-billion.

A regulatory delay also hit the project this summer, meaning the pipeline won't be in service until 2012 if all goes well, a year later than Imperial's goal, which had already been bumped back several times.

Houston-based Anadarko has sold its assets in Western Canada and continues to "actively market" its holdings in the Mackenzie Delta and the Arctic, including its stake in EnCana's Umiak find. Anadarko bought two companies in the United States this year and is trying to pay down debt.

Anadarko said the northern assets are more expensive and pose a higher risk than its other opportunities.

"Targeted divestitures are expected to result in a portfolio of assets that is less capital intensive, more geographically concentrated and has better growth potential with lower execution risk," Al Walker, Anadarko's chief financial officer, said in a press release last week.

EnCana said the pipeline delay wasn't the main reason for its sale and believes one will eventually be built, adding that it knows it will take some time.

"The pipeline plans are going to take a while," Mr. Boras said, adding that the assets for sale could be a better fit for a company with a different strategy than EnCana.

There was far more optimism a year ago. Devon Energy Corp. spent $60-million drilling the first offshore well in the Beaufort Sea since the late 1980s but didn't find the trillions of cubic feet of gas it was hoping to hit. The company is regrouping and isn't drilling a well this winter.

In Inuvik -- a town struggling as industry activity dries up -- despair is setting in among residents and business owners.

Without a pipeline link, the future of the community is in doubt, as it has no sustainable economy beyond the federal government dollars that prop up the half-century-old settlement.

According to Permafrost Media, an Inuvik publication, BP and Chevron are expected to make an announcement in the next two weeks about drilling in the area.

"The t's haven't been crossed and the i's haven't been dotted yet, folks, but it's the brightest thing so far for this winter," Permafrost said in a daily dispatch yesterday.