By Chester Dalton
CALGARY--Canada's Encana Corp. will buy 45,500 acres of the
Eagle Ford Shale in Texas from Freeport-McMoRan Copper & Gold
Inc. for $3.1 billion, pivoting the large natural-gas producer
toward more oil-producing assets as part of a major
restructuring.
The transaction would double Encana's current rate of oil
production and brings the Calgary-based company full circle after a
2009 decision to spin off its oil-producing assets, which became
Cenovus Energy Inc.
It marks the first major acquisition under Chief Executive Doug
Suttles, who left the door open for additional purchases. "This
acquisition represents a significant step toward repositioning the
company for success," Mr. Suttles told a conference call on
Wednesday. "Fundamentally, what we've done here is exited a couple
of dry gas positions and converted that into a significant new oil
position."
The news sent Encana shares up 4.1% in price to $23.51 in early
New York trading.
Encana has been hurt by a drop in natural gas prices in recent
years, and the company has sought to focus on production of more
lucrative non-gas liquids such as propane. It announced a
restructuring in November that slashed its dividend, cut hundreds
of jobs and launched an active divestiture program.
Last month, Encana agreed to sell about 90,000 net acres of gas
producing land to an undisclosed buyer for $530 million, and in
March it sold natural-gas producing properties in Wyoming to TPG
Capital for $1.8 billion. Encana said last week that it expects to
raise nearly $800 million by spinning off its royalties-earning
unit.
The Eagle Ford properties purchased by Encana include 355
producing wells which pumped about 53,000 barrels of oil equivalent
per day during the first quarter, 75% of which was light crude
oil.
Mr. Suttles said "at least another 400" wells will be drilled
beyond those started by Freeport on an asset base that he said
would pay for itself within the year. "We clearly see more
locations than they did on the property," he said.
The transaction is expected to close during the second quarter
and will have an effective date of April 1.
Freeport-McMoRan said it doesn't expect to record either a gain
or a loss on the deal. "This transaction represents an important
step in our ongoing debt reduction plan, while providing additional
capital to enhance our portfolio of assets with superior margins
and growth characteristics," Freeport said.
Encana's move into Eagle Ford adds another play to the company's
five other core business areas. These include two liquids-rich gas
positions in Western Canada as well as the DJ Basin in Colorado,
New Mexico's San Juan Basin and the Tuscaloosa Marine Shale along
the Louisiana-Mississippi border.
Encana hired Mr. Suttles, a former BP PLC executive, last June
in an attempt to stem a profit slide after a rapid build-out of
natural gas producing capacity. The company was created in 2002
after the merger of the Alberta Energy Co. and PanCanadian Energy
Corp.
Michael Calia contributed to this article.
Write to Chester Dawson at chester.dawson@wsj.com
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