Encana agrees to buy Texas-based Athlon Energy in $7.1B deal
Calgary company has been shifting its production to oil and gas liquids amid low natural gas prices
Encana Corp. has made a deal with Texas-based Athlon Energy to take over the company for just over $7 billion.
Calgary-based Encana announced the deal before markets opened Monday morning. The move gives Encana access to a major Texas oil play and speed up its shift towards more liquids production. The purchase will add the equivalent of about 30,000 barrels of oil per day of production focused in the Midland Basin, part of the Permian formation in West Texas.
"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," Doug Suttles, Encana president and CEO, said in a statement Monday.
The company has been shifting its production to oil and gas liquids amid persistently low prices for natural gas. Encana now expects to generate 75 per cent of its operating cash flow from liquids production by next year. That's two years ahead of the 2017 deadline the company gave itself to make that switch.
Monday's move is the energy giant's biggest acquisition after a series of assets sales aimed at freeing up cash and focusing on the company's core natural gas business.
In June, Encada sold its Bighorn properties in Alberta to an American private-equity firm for just under $2 billion. It then turned around and spent just over $3 billion to buy oil-producing assets in the Eagle Ford Shale in Texas from Freeport-McMoran.
Last week, Encana sold its remaining stake in PrairieSky Royalty Ltd. for about $2.6 billion to a syndicate of underwriters. That was after the inital IPO of PrairisSky raised billions more to the company's coffers — cash to make moves like the one announced Monday.
Encana will pay nearly $6 billion in cash and assume about $1.15 billion of Athlon's debt.
Athlon's shareholders are being offered $58.50 per share cash, for a total of $5.93 billion.
Athlon shares closed Friday at $46.73 on the New York Stock Exchange. Encana's closed at $23.59 Cdn on the Toronto Stock Exchange.
"With Encana's exceptional resources and the collective expertise of both teams, the next phase will accelerate development and ultimately realize the full potential of the deep inventory of premier projects," Bob Reeves, Athlon's chairman, president and chief executive, said in a joint statement.
With files from Canadian Press