EnCana beats estimate on asset sale
Natural gas storage operations bring in US$1.5B, up 50% from estimates; company close to wrapping up sale offshore Brazil
For Petroleum News
EnCana has put one of the final touches on a large-scale divestiture program that started when it was created four years ago by pocketing US$1.5 billion for the bulk of its natural gas storage operations — 50 percent more than some analysts had anticipated.
The buyer was Carlyle/Riverstone Global Energy and Power Fund, a combined privately held U.S. equity fund.
The bundle includes 191 billion cubic feet of capacity in Alberta, California, Oklahoma and Louisiana and includes 93 percent of capacity at the AECO Hub in Alberta, the largest North American wholesale gas market.
The deal is scheduled to close in mid-April, with the exception of the 24 bcf Wild Goose facility in California, which needs review and approval from the California Public Utilities Commission.
Out of the transaction EnCana expects to post an after-tax gain of $850 million, pushing its total returns from asset sales over the $10 billion mark.
Close to sale of ChinookThe company also reported it is close to wrapping up the $350 million sale of its stake in the Chinook field offshore Brazil to Norsk Hydro.
Just last week it completed the $1.42 billion disposal of its production and pipeline assets to Ecuador and recently sold the Entegra Pipeline in Colorado to Kinder Morgan and Sempra for $240 million. The proceeds of $3.3 billion from recent divestitures are being used to pay down debt and buy back shares at a time when share prices are estimated at 75 percent of net asset value.
Analysts also believe the sales have completed a restructuring of EnCana, giving it an exclusive North American focus, and putting it in a strong position for future acquisitions.
Deal-making not over?But not everyone thinks the deal-making is over.
Amir Arif, senior vice president of equity research at U.S. investment bank Friedman Billings Ramsey, told the Financial Post that some oil sands leases could be unloaded, further narrowing the big independent’s interest to unconventional resource plays.
He doubts EnCana will ever achieve its stated goal of producing 500,000 barrels per day from the oil sands given that the returns on gas are 30-50 percent against 15-20 percent from the oil sands.
EnCana has disclosed that a list of 20 companies is evaluating those assets without indicating whether it favors selling assets to bring in a partner or swapping assets for other interests, such as gas holdings, or some other transaction.
It has set a general goal of acquisitions and disposals that involve selling non-core interests covering up to 5 percent of its production annually.