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Encana advances ‘right-sizing’ Liquids-rich Colorado sale, proceeds tagged to strengthen balance sheet without eroding core operations, raises ’15 sales to US$2.7B GARY PARK For Petroleum News
Encana has struck its second deal in a month to shed more United States assets as it continues wrestling its balance sheet into fighting shape by unloading non-core assets.
The transaction involves unloading tens of thousands of acres in the Denver Julesburg basin for US$900 million to a joint venture led by the investment arm of the Canadian government’s pension plan.
The Canada Pension Plan Investment Board will hold 95 percent of the new concern, and The Broe Group the remaining 5 percent.
The liquids rich Wattenberg field consists of 51,000 net acres and 96.8 million barrels of oil equivalent that in the first half of this year churned out an average 52 million cubic feet of natural gas a day and 14,800 barrels of crude and natural gas liquids.
The holding generated US$73 million in operating cash flow for Encana in the first half of 2015.
“The DJ basin is one of the leading oil and natural gas plays in North America and Encana’s assets and operations have long been regarded as top tier by industry standards,” said Avik Dey, head of natural resources at CPPIB. “This investment offers attractive economics and aligns well with our strategy for the energy sector.”
“Our efforts to transform our portfolio, improve efficiency and grow margins are increasing returns and strengthening our balance sheet, positioning Encana for success throughout the commodity cycle,” said Chief Executive Officer Doug Suttles.
Previous sale The sale comes on the heels of Encana’s disposal of 112,000 acres of leased land and five fee mineral lands and production of 217 million cubic feet per day for cash returns of US$850 million and a US$480 million reduction in gathering and mid-stream commitments, resulting in the Calgary-based company quitting the Haynesville shale in northern Louisiana.
The buyer was a joint venture of GeoSouthern Haynesville and GSO Capital Partners, two Houston-area operations.
Prior to that Encana sold its Clearwater assets in Alberta for C$605 million and a Montney midstream asset in British Columbia for C$461 million.
The DJ basin transaction raises Encana’s divestments this year to US$2.7 billion, close to its target of reducing net debt by about US$3 billion by year’s end.
Analyst: Focus on core plays AltaCorp Capital analyst Nicholas Lupick said the latest divestiture “continues to advance the right-sizing of the company’s capital structure” without affecting Encana’s plans to focus on four core plays - the Duvernay and Montney in Western Canada, and the Permian and Eagle Ford in Texas.
He said in a report that the next sales Encana is likely to pursue are its Deep Panuke offshore gas operation in Nova Scotia and the Piceance basin gas holdings in the U.S.
Arthur Grayfer of CIBC World markets was among those criticizing the price Encana received for the DJ basin interests, while Amir Arif of Cormack Securities said the transaction metrics of US$38,400 (per barrel of oil equivalent) seem “relatively light given that the assets were located in the heart of the Wattenberg field, which is one of the most productive fields in the DJ basin and offers multiple Niobrara and Codell formations with good economics.”
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