The deal is the latest investment by China's top oil producer in Canada as the energy-guzzling nation scours the world for natural resources needed to fuel its fast-growing economy.

Under the agreement, PetroChina and Encana would jointly develop the Cutbank Ridge fields in British Columbia and Alberta, a 256,975-hectare (635,000-acre) site with daily production of 255 million cubic feet of natural gas equivalent (7.22 million cubic metres).

Encana said the fields, in which PetroChina will have a 50-percent interest if the deal goes through, have proved reserves of about one trillion cubic feet of natural gas equivalent.

Encana chief executive Randy Eresman called the agreement a "major milestone" in the Canadian company's developing relationship with PetroChina.

He said the investment would allow Cutbank Ridge to be developed at an accelerated pace.

"This transaction is an important step forward in the plan that we announced last spring -- to accelerate recognition of the value inherent in our vast natural gas resource portfolio," Eresman said.

"This agreement provides further evidence of the tremendous value that our teams have created in our Cutbank Ridge key resource play, just one of the many large resource plays we have in our company," he said.

The deal has to be approved by Canadian and Chinese regulatory authorities, and aspects of the agreement still have to be negotiated, the companies said in their statements.

PetroChina said the joint venture provided "a platform for entering the major market in North America".

Canada last year rejected a $39 billion takeover of Potash Corp by Anglo-Australian miner BHP Billiton on grounds that the Canadian company was of strategic interest and its sale was unlikely to benefit the country.

But that was a hostile takeover, and as a joint venture, the Encana deal with PetroChina may be less controversial.

Encana specialises in the exploitation of unconventional gas deposits in Canada and the United States.

In presenting its third quarter results in October, the company announced a return to profitability with net earnings of $569 million. It releases its fourth quarter results on Thursday.

PetroChina, which is owned by the China National Petroleum Corporation, has made major investments in Canadian natural resources before, having taken a $1.7 billion stake in 2009 in two projects to exploit oil sands with the Canadian company Athabasca Oil Sands.

Chinese firms have pumped billions of dollars into the Alberta oil sands region in western Canada, which has estimated reserves of 175 billion barrels -- the largest known crude deposit outside the Middle East.

The markets reacted with scepticism to the joint venture.

PetroChina's Hong Kong shares closed down 3.04 percent at HK$10.22 ($1.31) while its Shanghai shares rose 0.61 percent to 11.53 yuan ($1.75).

Its shares dropped 3.69 percent to $135.66 in New York.

Encana shares fell 1.91 percent to $30.83 in after-hours trading.

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