Encana to sell Colorado oil, gas properties for $900 million

By REBECCA PENTY
Bloomberg

Encana Corp. agreed to sell oil and natural gas properties in Colorado to an entity 95% owned by Canada Pension Plan Investment Board for about $900 million to lower debt.

It’s North America’s largest oil and gas land deal this year, topping Encana’s August sale of its Haynesville gas properties, according to data compiled by Bloomberg.

The transaction involves Encana’s 51,000-acre Denver-Julesburg Basin assets, which produced about 52 million cubic feet/day of gas and 14,800 bpd of oil and gas liquids in the first half of 2015, according to a statement Thursday.

The Canadian energy producer, which is shifting its focus from gas to oil, has been divesting assets outside its four primary operating areas in North America as a 45% slide in crude prices from a year ago curbs the company’s ability to fund drilling and makes it tougher to service debt.

Encana’s net proceeds from divestitures this year total $2.7 billion, including the Colorado sale, helping to lower net debt by $3 billion before the end of 2015.

“On a strategic basis, we highlight that the deal continues to focus the asset base while reducing debt,” Kristopher Zack, an analyst at Desjardins Capital Markets in Calgary, wrote Thursday in a note.

Shares of the Calgary-based company rose 1.9% to C$11.25 at 10:12 a.m. in Toronto, after earlier gaining 4.4%, the most since July 21.

With the sale, Encana’s net debt in 2016 is forecast to fall to 3.8 times its trailing cash flow, in line with the average of its peers, Greg Pardy, an analyst at RBC Capital Markets in Toronto, wrote in a note. The deal price of $36,800 per flowing equivalent barrel and $9.30/bbl of proven reserves “reflects current oil market conditions,” Pardy wrote.

Oil and gas deals in North America have fallen this year with the market rout as buyers and sellers fail to come to terms, amounting to $6.38 billion year to date. That compares with $17.9 billion for all of 2014.

The purchasing entity is 5% owned by The Broe Group, an investment management company. The transaction is expected to close in the fourth quarter of 2015, with an effective date of April 1, 2015.

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