Encana Corp. (Toronto: ECA.TO) and Athlon Energy Inc. (NYSE: ATHL) have entered into a definitive merger agreement for Encana to acquire all of the issued and outstanding shares of common stock of Texas-based Athlon by means of an all-cash tender offer for US$5.93 billion (US$58.50 per share), as well as Encana assuming Athlon's US$1.15 billion of senior notes, for a total transaction value of approximately US$7.1 billion. The Athlon board of directors has unanimously recommended to its shareholders that they tender to the offer.
The acquisition will add Athlon's land position of approximately 140,000 net acres focused solely in the heart of the oil-rich Midland Basin to Encana's portfolio, giving the company a seventh growth area.
"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," said Doug Suttles, Encana president & CEO. "The Athlon team has built an exceptional asset with massive running room that includes greater than 10 years of drilling inventory with up to 11 potential productive horizons of high-margin liquids."
Encana expects that the transaction will add current production of about 30,000 barrels of oil equivalent per day (boe/d) based on Athlon's current estimated production including recent acquisitions. Encana sees the potential for approximately 5,000 horizontal well locations with potential recoverable resource of approximately 3 billion barrels of oil equivalent. In 2015, Encana intends to invest at least $1 billion of capital in the play and ramp up from three to at least seven horizontal rigs by year-end 2015. The Permian will play an important part within Encana's growth portfolio, contributing significantly to company-wide projected total liquids production of around 250,000 barrels per day (bbls/d) by 2017.
Following this oil-rich acquisition, Encana now expects to achieve its initial 2017 target to reach 75% of operating cash flow from liquids production in 2015, marking a major strategic milestone. In the past year, the company has significantly realigned its portfolio through divestitures of natural gas-weighted assets and the acquisition and development of higher-margin oil and natural gas liquids (NGLs) opportunities.
Strategic Rationale
- acquisition in core of North America's largest unconventional oil play
- accelerates rebalancing of portfolio by two years
- investment opportunities for 10+ years
- acquiring premium netback production
- lower margin natural gas production being replaced with higher margin oil and NGLs
- opportunity to enhance value through application of Encana's operational and proven resource play hub expertise
- immediately accretive to cash flow per share
- expected to become free cash flow positive in 2016
- effective deployment of cash balance
Athlon's Permian Asset Key Metrics
Acres | 140,000 net acres | |
Location | Midland, Martin, Howard, Glasscock and other counties, Texas | |
Athlon's current estimated production including recent acquisitions | Approximately 30,000 boe/d (~80% liquids) | |
Athlon's number of producing wells as of Q2 2014 | 1,121 vertical, 17 horizontal | |
Athlon's proved reserves | 173 MMboe (pro forma for year-to-date acquisitions) |
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