Encana in February said it would sell a 50 percent share in Cutbank Ridge assets in western Canada to PetroChina for $5.4 billion.
The shale gas play is estimated to hold around 1 trillion cubic feet of natural gas. Encana had said it would boost production there at a rate of around 14 percent per year but scaled that back to 10 percent after releasing first quarter financial results in April.
"After close to a year of exclusive negotiations with PetroChina, we were unable to reach alignment on the planned transaction," Encana Chief Executive Officer Randy Eresman said in a statement.
Sources close to the deal told the Platts news service the Chinese were disappointed with Encana's forecasts on production targets through 2015.
PetroChina has said the collapse of the Encana deal wouldn't sway it from investing in unconventional natural resources like shale in North America, however.
The company said it aims to produce close to 1.5 million barrels of oil equivalent from projects overseas by 2015.