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Encana Corp strikes $7.1bn deal to buy US explorer Athlon Energy

Encana Corp strikes $7.1bn deal to buy US explorer Athlon Energy

Photo by Bloomberg

29th September 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Canada's second-largest natural gas producer Encana Corp on Monday revealed that it had struck a $7.1-billion deal that would see it acquire Texas-based Athlon Energy and gain a foothold in the most prolific oil-producing region in North America.

Calgary-based Encana’s TSX-listed stock on Monday rose after announcing that it would buy Athlon for $5.93-billion, while assuming Athlon's $1.15-billion of senior notes in a deal that would give Encana access to 140 000 net acres in the heart of the oil-rich Midland basin.

"This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America's top oil plays. The Athlon team has built an exceptional asset with massive running room that includes greater than ten years of drilling inventory with up to 11 potential productive horizons of high-margin liquids," Encana president and CEO Doug Suttles said.

Under the terms of the merger agreement, Athlon shareholders would receive $58.50 a share in cash, which represented a premium of 28% over the average trading price of Athlon stock for the last 20 days and a 25% premium over the trading price of Athlon stock at market close on Friday. The offer was expected to take effect in ten business days and shareholders would have 20 business days to tender their shares to the offer.

Encana expected the deal to add about 30 000 barrels of oil equivalent (boe) a day of current production to its portfolio, based on Athlon's estimated output, including recent acquisitions. Encana also foresaw the potential for about 5 000 horizontal well locations, with a potential recoverable resource of about three-billion boe.

The company planned to invest at least $1-billion of capital in the play next year, ramping up from three to at least seven horizontal rigs by year-end 2015.

The Permian would play an important part within Encana's growth portfolio, contributing significantly to company-wide projected total liquids production of around 250 000 bbl/d by 2017, the company said.

Following this oil-rich acquisition, Encana now expected to achieve its initial 2017 target of 75% of operating cash flow from liquids production in 2015, marking a significant strategic milestone. In the past year, the company had significantly realigned its portfolio through divestitures of natural-gas-weighted assets and the acquisition and development of higher-margin oil and natural gas liquids opportunities.

The deal was expected to immediately add to the cash flow a share and to become free cash-flow positive in 2016.

Athlon's board had already approved the deal and its senior management and shareholder Apollo Global had agreed to vote in favour of the transaction, representing about 36% in Athlon shares.

The acquisition was expected to close by the end of the year.

"It is early days in the horizontal development of the Permian play and we see tremendous opportunity to enhance and accelerate value by applying our proven resource play model. Our growth areas now include the top two resource plays in Canada, Montney and Duvernay, and the top two resource plays in the US, Eagle Ford and Permian,” Suttles added.

On Monday, Encana’s NYSE-listed stock rose 2.18% to $21.59 apiece and Athlon’s NYSE-listed stock rose 24.8% to $58.32 apiece.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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