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Encana gets oily with US$3.1-billion acquisition in Eagle Ford shale

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CALGARY - Encana Corp. is spending US$3.1 billion to enter the oil-rich Eagle Ford shale in Texas, marking yet another big strategic shift under new CEO Doug Suttles.

"This acquisition, I think, represents a significant step towards repositioning the company for success," Suttles, who took the reins just under a year ago, told analysts during a conference call Wednesday.

Shares in Encana were up more than four per cent at $25.58 in afternoon trading on the Toronto Stock Exchange.

The Calgary-based company (TSX:ECA) has long been known as a dominant North American natural gas producer, having spun off its oil operations to create Cenovus Energy Inc. (TSX:CVE) in 2009.

The deal with Freeport-McMoRan Oil & Gas, a subsidiary of Freeport-McMoRan Copper & Gold Inc., tilts Encana more towards oil, roughly doubling its output of the lucrative commodity.

Suttles said he believes Encana can improve performance on the newly acquired properties, which cover about 18,400 net hectares.

"One of the reasons we've acquired this position is we see the opportunity to apply our resource play expertise and extend the recoveries," he said.

Last fall, Suttles unveiled a new strategy for Encana, which had for years struggled with low natural gas prices, and juggled operations in dozens of different regions.

The company honed in on five core areas: the Montney and Duvernay in Western Canada; the DJ Basin in Colorado; the San Juan Basin in New Mexico and the Tuscaloosa Marine Shale in the southeastern United States.

Once the deal closes, the Eagle Ford becomes a sixth.

Encana could focus on up to eight core areas, Suttles said.

The Eagle Ford purchase is "fully aligned" with the new strategy laid out in November, he said.

"And, in fact, we believe it accelerates our plan that we laid out at that time."

The new strategy also involved Encana cutting 20 per cent of its staff and spinning off some of its Alberta land holdings into a separate publicly traded business called PrairieSky Royalty Ltd.

Encana also has recently sold dry gas assets in Wyoming and East Texas, which are less attractive than ones that produce oil and natural gas liquids.

"Fundamentally, what we've done here is exited a couple of dry gas positions and converted that into a significant oil position, which I think is completely consistent with our strategy," said Suttles.

Encana said the Texas property has an estimated drilling inventory of more than 400 locations in the heart of the Eagle Ford.

In the first quarter of 2014, production from the acreage to be acquired by Encana included approximately 46,000 barrels per day of total liquids production and 44 million cubic feet per day of natural gas, which generated an operating cash flow of US$327 million.

Suttles said there are enough pipelines in the Eagle Ford area to get the crude to market, adding that the oil fetches an attractive Light Louisiana Sweet price.

As for whether Encana would look to pick up more acreage in the area, Suttles said: "If the right opportunity were available, we'd clearly look at it."

Fellow Canadian oil and gas company Talisman Energy Inc. (TSX:TLM), also in the midst of a big restructuring, has been selling many of its assets. One of those was rumoured to be the Eagle Ford, but Talisman CEO Hal Kvisle said his company isn't actively looking for a buyer.

"It is one of the hottest and most active plays in the U.S. — there are always people inquiring and expressing interest in assets like that," he told reporters following Talisman's annual meeting. "We're not closer to a deal in the Eagle Ford today than we ever have been."

Freeport-McMoRan said about half of the proceeds from its Eagle Ford sale will go toward repaying debt, with the rest to be invested in the Gulf of Mexico.

"Our team built a solid position in the Eagle Ford, which will enable Encana to build on our success," CEO James Flores said in a release.

Follow @LaurenKrugel on Twitter

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