Encana to Double Oil Output with $3.1b US Deal
Canada's largest natural gas company Encana Corp said on Wednesday it is buying producing assets in the Eagle Ford shale field in Texas from Freeport-McMoRan Copper & Gold for $3.1 billion, nearly doubling its oil output.
Encana has been concentrating on five shale fields that are rich in oil and natural-gas liquids to lessen its dependence on lower-value gas. This transaction will add a sixth focus area and is aligned with Encana's growth strategy, the company said.
"Gaining a position in a world class, oil-rich resource play like the Eagle Ford accelerates the transition of our portfolio and underscores our investment focus on high margin assets" said Encana's Chief Executive Doug Suttles, in a statement.
Calgary-based Encana has been focusing on five shale fields - Montney in British Columbia, Duvernay in Alberta, the DJ Basin in Colorado, the San Juan Basin in the U.S. Southwest and the Tuscaloosa Marine Shale in the U.S. South. It has sold natural gas properties in Wyoming's Jonah field and other acreage in East Texas to reduce its dependence on pure gas assets.
Encana said the Eagle Ford assets offer a large contiguous land position in the core of the play, fitting well with Encana's technical expertise in developing resource plays.
Canaccord Genuity analyst Phil Skolnick said he views the transaction as positive for Encana, as the deal will boost cash flows for the company.
The deal will give Encana 45,500 net acres in Karnes, Wilson and Atascosa counties in south Texas. The properties produced the equivalent of about 53,000 barrels of oil per day in the first quarter, the company said.
Encana said it expects to fund the deal with cash on hand combined with anticipated proceeds from previously announced transactions. The deal is expected to close by the end of the second quarter.
Freeport Debt Reduction
Freeport said it expects net proceeds of about $2.5 billion, roughly half of which would be used to repay debt and the rest for investment in the deepwater Gulf of Mexico. The proceeds would get the copper and gold miner more than halfway to its stated goal of monetizing about $4 billion of its energy assets.
Freeport had said it was looking to sell some assets to reduce its heavy debt load. Its debt levels spiked last year when it bought energy companies Plains Exploration & Production Co and McMoRan Exploration Co for $9 billion. At March 31, 2014, its consolidated debt was $20.9 billion.
"This transaction represents an important step in our ongoing debt reduction plan while providing additional capital to enhance our portfolio of assets with superior margins and growth characteristics," said Freeport's CEO James Moffett in a statement.
Scotia Waterous advised Encana on the deal. Barclays Capital Inc was Freeport's financial adviser.
Encana's shares, which gained 28 percent this year, closed at C$24.56 on the Toronto Stock Exchange on Tuesday. Freeport shares closed at $33.84 on the New York Stock Exchange.
(By Euan Rocha, With additional reporting by Sayantani Ghosh and Swetha Gopinath in Bangalore; Editing by Sriraj Kalluvila and Alden Bentley)