GEP Haynesville LLC, a joint venture formed by GeoSouthern Haynesville LP and funds managed by GSO Capital Partners LP, acquired Haynesville natural gas assets in northern Louisiana from Encana Oil & Gas (USA) Inc. for $850 million.
Encana confirmed Nov. 12 that the sale had closed with an effective date of Jan. 1, 2015. Executives said they would use proceeds to reduce Encana's net debt.
Separately, Jefferies & Co. analysts said they believe part of the Haynesville shale will see some production growth during 2016.
"After falling from 6 bcfd just a few years ago to current levels of 3.5 bcfd, we expect core Haynesville dry gas production to flatten out," Jefferies analysts said of the play in general.
"Specifically, we are modeling the Louisiana core of the Haynesville rising 1% in 2016 on rising completions driven by more efficient completion design, significant producer midstream requirements, and our view of better gas prices," analysts said in a September research note.
Encana manages production
EnCana agreed to manage GeoSouthern Haynesville's production on a fee basis for 5 years. Terms called for Encana to transfer its contractual obligations under its gathering and midstream commitments that extend through 2020 and total $480 million on an undiscounted basis.
During the first half, Encana's Haynesville assets produced an average 217 MMcfd, contributing 9% of companywide production and less than 2.5% to Encana's first half operating cash flow, excluding hedges.
Doug Suttles, Encana president and chief executive officer, said the transaction focuses the company's strategy on four key assets, the Permian and Eagle Ford plays in Texas as well as the Duvernay and Montney in Canada. Encana allocated 80% of its 2015 budget to those four plays.
"This transaction delivers significant proceeds that we'll use to strengthen our balance sheet. In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas-marketing arrangement," Suttles said.
Encana's Haynesville gas assets include 112,000 net acres of leasehold, plus additional fee mineral lands. Encana operates 300 wells in the area. Estimated year-end 2014 proved reserves were 720 bcf equivalent of gas.
Analysts with Global Hunter Securities called the transaction positive because Encana reduced its capital needs for noncore assets. Global Hunter analysts believe additional divestitures could include San Juan and DJ basin assets, Oil & Gas Financial Journal reported.
GeoSouthern Haynesville was formed by principles of GeoSouthern Energy and GeoSouthern Energy Partners LP GeoSouthern Energy Corp. of the Woodlands, Tex., sold its Eagle Ford assets to Devon in 2014. GSO Capital is the credit business for Blackstone Group LP.