Encana to sell Haynesville gas land in Louisiana for $850 million

By REBECCA PENTY
Bloomberg

In North America’s largest energy land deal of the year, Encana agreed to sell natural gas properties in northern Louisiana for $850 million to a venture run by GSO Capital Partners and GeoSouthern Haynesville.

The properties in the Haynesville shale include about 112,000 acres (45,000 hectares) of land held by leases as well as additional fee-mineral lands, according to a statement from the Calgary-based company this week.

The assets produced an average of 217 million cubic feet/day from 300 wells in the first half of the year, about 9% of Encana’s output, and contain the equivalent of about 720 billion cubic feet of gas reserves, the company said.

The Canadian energy producer, which is shifting its focus from gas to oil, said it will exit Louisiana with the deal and use the proceeds to pay down debt. Encana will also lower its commitments for gathering and transportation of fuel on nearby pipelines by about $480 million through 2020. It will receive a fee for transporting the venture’s gas output in the area for five years.

“This transaction delivers significant proceeds that we’ll use to strengthen our balance sheet,” Doug Suttles, Encana’s CEO, said in the statement. “In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas marketing arrangement.”

The deal is larger than the $840 million sale of US shale gas assets by a consortium led by Chesapeake Energy to FourPoint Energy announced in July, making it the biggest North American energy land asset deal this year, according to data compiled by Bloomberg.

“Encana’s transaction appears to be in the ballpark with our expectation,” Greg Pardy, an analyst at RBC Dominion Securities in Toronto, wrote in a note. The company is receiving $3,900 per thousand cubic feet equivalent a day of production and $1.18 per thousand cubic feet equivalent of reserves, according to the note.

Analysts including Pardy had expected Encana to part with properties outside its primary operating areas to reduce debt that’s higher than its peers. The company had been trying to sell the Haynesville properties since at least April, people familiar with the process said at the time.

Encana is targeting more than 80% of its spending in 2015 on four shale oil and gas areas that it’s focused on in North America, including the Montney and Duvernay in Western Canada and the Permian and Eagle Ford in the US.

GeoSouthern Haynesville is a joint venture between GeoSouthern Energy Corp., a closely-held exploration and production company, and GeoSouthern Energy Partners. GSO Capital is the credit-focused division of Blackstone Group, a private-equity firm.

Jefferies Group LLC, Credit Suisse Group and Gordon Arata McCollam Duplantis & Eagan LLC advised Encana on the deal, which is expected to close by the end of the year. GeoSouthern was advised by Kirkland & Ellis LLP and Thompson & Knight LLP.

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