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Encana Expands Shale Footprint With $5.5B Newfield Acquisition

Montney shale

Canada’s Encana said today it will buy Newfield Exploration for US$5.5 billion in an all-stock deal that will also assume Newfield’s debt of US$2.2 billion net. The deal will increase Encana’s presence in the U.S. shale patch, making it one of the largest players in this field.

The acquisition should result in synergies of US$250 million annually, Encana also said, with oil and condensate production shooting up by more than 54 percent and proven reserves by as much as 85 percent.

Encana is firmly on a growth path, its focus on shale, with a solid presence in the Montney and Duvernay shale plays in Canada and now with a bigger presence in the Permian and the Eagle Ford, as well as in the STACK/SCOOP formation in the United States.

The company reported the acquisition along with its third-quarter results, which give it a reason to be upbeat: its cash from operating activities rose by a whopping 148 percent on the year to US$885 million, with free cash flow at US$66 million. The company’s net result came in at US$39 million.

Production of petroleum liquids was also up considerably, by 40 percent on the year, to 178,700 bpd. Some 75 percent of this was high-value crude oil and condensate, Encana said in its third-quarter earnings press release.

Despite its strong performance, Encana has not been shielded from the industry-wide problems of Canadian oil producers, bitumen and light crude alike. Pipeline constraints and high carbon taxes have pressured the prices of Canadian grades with both main benchmarks—for heavy crude and for light sweet oil—are trending a lot lower than West Texas Intermediate. This recently prompted Encana’s chief executive, Doug Suttles, to criticize the government in Ottawa for making the local oil and gas industry uncompetitive. The high carbon taxes were probably taken into account when making the decision to expand in the United States.

By Irina Slav for Oilprice.com

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