Encana to acquire Eagle Ford acreage for $3.1 billion

Encana Oil & Gas Inc., a wholly owned subsidiary of Encana Corp., has reached an agreement with Freeport-McMoRan Oil & Gas LCC, a subsidiary of Freeport-McMoRan Copper & Gold Inc., to acquire 45,500 net acres in Karnes, Wilson, and Atascosa counties, part of the Eagle Ford shale in South Texas, for $3.1 billion, effective Apr. 1.

The acreage produced 53,000 boe/d in the first quarter and has an estimated drilling inventory of more than 400 locations. At yearend 2013, net proved reserves totaled 59 million boe while net proved and probable reserves totaled 69 million boe.

Production from the acreage in the first quarter included 46,000 b/d of total liquids production and 44 MMcfd of natural gas, generating operating cash flow of $327 million, with 75% of the total production volumes for the period being oil.

“With this transaction, combined with our announced divestments of Jonah and properties in East Texas, we’re replacing natural gas production with high margin oil and liquids production,” said Doug Suttles, Encana president and chief executive officer (OGJ Online, Mar. 31, 2014; Apr. 29, 2014).

The move advances the company’s strategy by adding a sixth core growth asset in an established oil production basin. Encana said the deal will double the company’s current oil production.

Encana expects the assets to be free cash flow positive in 2014, allowing Encana to execute its existing capital plan for the year without redirecting capital from its other five core growth plays. Through the second half of this year, Encana plans to start ramping up its activity in the play and exit 2014 with at least four drilling rigs running.

“In addition to the near-term growth potential of this asset, we believe there are many opportunities to enhance the value of this world class position by applying our proven resource play expertise,” Suttles said, adding, "Overall, this acquisition fully aligns with our strategy announced last November; it will significantly boost our oil and liquids output, improve our ability to generate cash flow, and enhance our portfolio of world-class resource plays (OGJ, Jan. 20, 2014, p. 22).”

James C. Flores, president and chief executive officer of Freeport-McMoRan Oil & Gas and vice-chairman of Freeport-McMoRan Copper & Gold, said “Our team built a solid position in the Eagle Ford, which will enable Encana to build on our success.

“The transaction is part of our plan to monetize approximately $4 billion in energy assets to provide meaningful proceeds for debt repayment while enabling us to refocus our asset base and capital allocation on our strategic growth areas in the Gulf of Mexico, which we believe provide industry leading margins, high impact long-term growth opportunities and superior investment returns.”

The transaction is expected to close by the end of the second quarter.