To go beyond is as wrong as to fall short...

Shale gas is the most important major new source of energy on the planet, as well as the most important development in the petroleum economy since deep water drilling. Ten years ago, shale gas was just 1% of American natural-gas supplies. Today, it is about 25% and could rise to 50% within two decades. Estimates are that US has more than a 100-year supply of natural gas, thanks to the development of shale gas. Natural gas is used for everything from home heating and cooking to electric generation, industrial processes and petrochemical feedstocks.
Beneath China’s surface also lies shale gas, most likely quite a lot of it. According to information released by the US Energy Information Administration (EIA) in April, China has 1,275 tcf of technically recoverable shale gas resources, nearly 50% more than the US. Those estimated recoverable reserves are more than one thousand times the amount of natural gas used in China in 2010.

PetroChina and China National Offshore Oil Corporation (CNOOC) bought stakes in North American shale drillers like Chesapeake Energy and EnCana with the intent of acquiring technology and ramping up production at home. But, it is not certain, to say the least, that this strategy will pay off — becoming a small shareholder is not the same as buying a right to that company’s technology and expertise.

Yet, PetroChina Co., Asia’s largest oil producer, yesterday walked away from what would have been its largest deal this year, a C$5.4 billion ($5.5 billion) purchase that would have given the Chinese company a 50 percent stake in about 1 trillion cubic feet of Canadian natural gas.

PetroChina and Encana Corp. (ECA) failed to agree on a joint operating agreement, said Alan Boras, an Encana spokesman. Chinese companies won’t buy what they view as overpriced assets, said John Stephenson, a senior portfolio manager at First Asset Investment Inc. in Toronto.

Chinese energy companies looking for targets abroad have plenty of options to choose from in Canada and the U.S. Producers EOG Resources Inc. (EOG) and Venoco Inc. are among companies looking for partners to help fund shale-gas production, Raymond Deacon and Stephen Berman, analysts at Pritchard Capital Partners LLC, said in an April 17 note to clients.

The collapse of the Encana-PetroChina agreement is the second failed Canadian transaction by a Chinese company since April, when a hostile bid by China’s Minmetals Resources Ltd. for copper producer Equinox Minerals Ltd. was topped by a C$7.32 billion offer from Barrick Gold Corp.

Other Asian companies have entered the Canadian gas market. Encana in 2010 reached a $1.1 billion agreement to sell stakes in three gas fields to state-run Korea Gas Corp. Petroliam Nasional Bhd, Malaysia’s state-owned oil company, said on June 2 it would spend as much as C$1.07 billion for stakes in Progress Energy Resources Corp. (PRQ)’s fields.

Encana, Canada’s largest natural-gas producer, faces the prospect of slower growth unless it finds a partner to help develop millions of cubic feet of shale reserves. The cancellation of the PetroChina deal is “negative for Encana’s credit profile,” wrote Moody’s Investors Service yesterday in a note to clients. Moody’s said the partnership would have helped the Calgary-based company’s liquidity and “ability to fund negative free cash flow.”

Encana said joint venture talks with potential investors are “well under way” for other projects, including the Horn River shale and Greater Sierra field. The company expects to receive $1 billion to $2 billion in revenue from asset sales, up from a previous forecast of $500 million to $1 billion, according to the statement yesterday.

Investment ideas: Encana, EOG, & PRQ
China Inc limited opening of the shale gas in China could attract the best practices you seek.