Encana to double oil output with $3.1-billion Eagle Ford Texas purchase; Encana debt about $7.1-billion end 2013, 2.5 times its adjusted earnings before interest, taxes, depreciation, amortization

Revamping Encana will double oil output with $3.1-billion Texas deal by Carrie Tait, May 7, 2014, The Globe and Mail
Encana Corp., the Canadian natural gas company that is in the midst of restructuring, has struck a multibillion-dollar deal to buy a slice of a major oil play in Texas. Encana has reached an agreement to acquire property in the Eagle Ford for about $3.1-billion (U.S.), according to a statement it released Wednesday. Freeport-McMoRan Copper & Gold Inc. is selling the land, which houses about 45,500 acres.

BP’s Doug Suttles
Doug Suttles, Encana’s chief executive officer, wants his company to shift away from natural gas plays and into zones holding more lucrative commodities such as oil and natural gas liquids. To get there, he has been selling Encana’s assets, trying to create focus. In November, he tapped five of Encana’s existing plays as key to its future. This acquisition adds a sixth key area. Mr. Suttles called the deal “completely consistent” with Encana’s revamped strategy. He believes the deal will shorten the time necessary for Encana to shift into oil and natural gas liquids rather than being tied so closely to natural gas. It will roughly double Encana’s current oil production, the company said. “There’s an opportunity here to accelerate the rebalancing of the portfolio,” Mr. Suttles said during a conference call Tuesday morning. This acquisition is highly aligned with, and results in the acceleration of our strategy. It underscores our focus on growing value and not volume,” he said.

Freeport-McMoRan’s Eagle Ford property produced about 53,000 barrels of oil equivalent per day in the first quarter of 2014, Encana said in a statement. The play will be “immediately self-funding,” Mr. Suttles said. Encana believes this slice of the Eagle Ford is also “immediately accretive to cash flow per share,” he added. Encana will pay for the acquisition with cash on hand. It does not anticipate tweaking its capital plans for its existing five key areas, Mr. Suttles said. The deal is expected to close in the second quarter and is effective as of April 1, 2014. There are three drilling rigs on the property now, and Encana expects to have for spinning by the end of the year.

Scotia Waterous advised Encana on the Eagle Ford acquisition, Encana said. Barclays Capital Inc. advised Freeport-McMoRan, that company said in its own statement. Freeport-McMoRan, based in Phoenix, Ariz., says it plans to put half the cash it receives from the deal toward paying down debt, and invest the rest in assets in the Deepwater Gulf of Mexico, and speed up the company’s growth plans. “The transaction is part of our plan to monetize approximately $4-billion in energy assets to provide meaningful proceeds for debt repayment while enabling us to refocus our asset base and capital allocation on our strategic growth areas in the Gulf of Mexico,” James Flores, chief executive at Freeport-McMoRan’s oil and gas subsidiary, said in a separate statement.

Encana is in the process of spinning off roughly 5.2 million acres of land into a new company, dubbed PrairieSky Royalty Ltd. Encana expects to rake in between $747.5-million and $861.3-million through the initial public offering, while retaining about 75 per cent of the new company. Up until Tuesday’s Eagle Ford announcement, the PrairieSky deal was the most significant strategic move Mr. Suttles has made since taking over last summer.

He revealed his new plan last November, announcing plans to focus on five plays in North American, down from about two dozen. Mr. Suttles declared the company’s operations in the Montney in northeast British Columbia and northwest Alberta; the Duvernay in west central Alberta; the DJ Basin liquids play in Colorado; San Juan oil zone in northwest New Mexico; and the Tuscaloosa marine shale in Mississippi and Louisiana.

This November makeover marked the third time in three years Encana rewrote its plans. Mr. Suttles then planned to consolidate its offices in Calgary and Colorado, while shutting an office in Texas.

Encana’s 2014 budget, released in February, allowed for $2.4-billion (U.S) to $2.5-billion in spending. At the end of 2013, Encana had about $7.1-billion in debt on the books, according to its annual report. Its debt is 2.5 times its adjusted earnings before interest, taxes, depreciation and amortization, the report said.

The company also has operations in British Columbia’s Horn River; Alberta’s Bighorn; and its Deep Panuke property off Nova Scotia’s shores. In the United States, it controls land in the Collingwood/Utica shale, Haynesville, Jonah, and Piceance plays.

[Refer also to:

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Encana conference call 19 Seconds by nvanderklippe with The Globe and Mail

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