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July 2014

Vol. 19, No. 28 Week of July 13, 2014

Encana leads Western Canada deal making

Sheds Bighorn natural gas properties; company narrows focus to core areas in Canada, Colorado, New Mexico, southeastern US

Gary Park

For Petroleum News

Encana has given the largest prod to the latest round of asset deal-making in Western Canada by shedding its extensive Bighorn natural gas properties to Jupiter Resources for US$1.8 billion.

Chief Executive Officer Doug Suttles said in a press release that the transaction will advance his company’s strategy “by unlocking value from our portfolio as we focus on developing our core growth plays and extracting additional value from our base assets.”

He said Bighorn in west-central Alberta is a “high quality asset that has not been receiving significant investment in 2014. Going forward, it should serve as an excellent foundational asset” for Jupiter.

The deal, expected to close later this year, includes 360,000 net acres of land, plus Encana’s working interests in all related pipelines and other facilities. The reserves are estimated at 1.1 billion cubic feet equivalent, with gas accounting for 75 percent.

The properties yielded first-quarter volumes of 319 million cubic feet equivalent (23 percent oil and NGLs) and have 32 trillion cubic feet and up to 2 billion barrels of liquids in place (1.3 tcf equivalent proved).

Under Suttles, who occupied the top suite a year ago, Encana has narrowed its priorities to core areas: the Montney and Duvernay in Western Canada; the DJ basin in Colorado; the San Juan basin in New Mexico; and the Tuscaloosa Marine shale in the southeastern United States.

It has also recently added the Eagle Ford shale play in Texas through a US$3.1 billion purchase in May.

Other deals have included the sale of dry gas assets in Wyoming and East Texas.

Price at low end

Phil Skolnick, an analyst with Canaccord Genuity, rated the US$1.8 billion price as “disappointing,” while Randy Ollenberger, with the Bank of Montreal, said the value was at the low end of his expectations of US$1.9 billion to US$2.5 billion.

Suttles has indicated the once North American gas production leader could build a fold of eight core areas, a drastic change from a company that once has widely scattered operations in dozens of regions.

The company has also reduced staff by 20 percent by spinning off 5.2 million acres of freehold southern Alberta land holdings into PrairieSky Royalty.

Jupiter Chief Executive Officer Simon Bregazzi rated Bighorn as “one of North America’s premier liquids-rich natural gas projects in an area that has generated some of Canada’s most prolific well results in recent years.”

Privately owned Jupiter was founded by Apollo Global Management, which describes itself as an “alternative investment manager” that concentrates on contrarian bets in private equity, credit and real estate.

Other recent deals

In other deals since mid-June:

• Long Run Exploration continued the consolidation of its west-central Alberta Cardium assets by acquiring Crocotta Energy in a C$357 million deal, following the May closing of its purchase of oil and liquids-rich Cardium assets from Crew Energy for C$225 million.

Under the arrangement, a separate company will be created to own Crocotta’s Montney assets.

Long Run Vice President of Business Development Jason Fleury said the “win-win” deal enables his company to consolidate in a core area where it established a foothold with the Crew assets.

The Crocotta properties are producing 7,500 boe per day, while the Montney based company will produce 2,300 boe per day.

Crocotta started out as a private company seven years ago with production of 100 boe per day and grew to 9,800 boe per day.

Long Run is now targeting average output this year of 31,100 boe per day and 43,2o00 boe per day in 2015.

• Kelt Exploration has struck a cash-and-shares deal to buy Alberta Montney oil and gas assets from a private company that has not been identified.

The core producing areas for the assets are at Pouce Coupe and Spirit River in west-central Alberta near Grande Prairie.

Kelt plans to cover the transaction with 4.3 million shares valued at C$53 million and the balance of C$107 million with cash.

The assets currently produce 2,300 boe per day (70 percent oil), boosting Kelt’s average 2014 production by 10 percent to 12,150 boe per day, exiting 2014 at 15,300 boe per day.






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