Encana Corp., Calgary, has agreed to acquire all of the issued and outstanding shares of common stock of Athlon Energy Inc., Ft. Worth, through an all-cash tender offer of $5.93 billion. Encana also will assume Athlon's $1.15 billion of senior notes, bringing the total transaction value to $7.1 billion.
Athlon's board has unanimously recommended to its shareholders that they tender to the offer. The deal is expected to close by yearend.
The acquisition encompasses 140,000 net acres in the heart of the oil-rich Midland basin in several counties including Midland, Martin, Howard, Glasscock, adding 30,000 boe/d in production, 80% of which is liquids.
During the second quarter, the acreage totaled 1,121 vertical wells and 17 horizontal wells producing. Encana sees the potential for 5,000 horizontal well locations with potential recoverable resource of 3 billion boe.
"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," said Doug Suttles, Encana president and chief executive officer.
Encana in 2015 intends to invest at least $1 billion of capital in the play and ramp up from three to at least seven horizontal rigs.
Expanding liquids production
The company says the Permian will play an important part in its growth portfolio, contributing significantly to companywide projected total liquids production of 250,000 b/d by 2017.
"During our strategic review last year, we carefully studied North America's premier basins and identified the massive horizontal, multizone, development potential in the Permian," said Suttles. "Our strong balance sheet gave us the ability to act and capture this highly value-accretive opportunity. It is early days in the horizontal development of the Permian play and we see tremendous opportunity to enhance and accelerate value by applying our proven resource play model."
Encana now expects to achieve its initial 2017 target of 75% operating cash flow from liquids production in 2015 (OGJ Online, Dec. 12, 2013). 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 NGL opportunities.
"Our growth areas now include the top two resource plays in Canada, the Montney and Duvernay, and the top two resource plays in the United States, the Eagle Ford and the Permian," said Suttles.
Encana in May acquired 45,500 net acres in Karnes, Wilson, and Atascosa counties in Texas, part of the Eagle Ford, from an affiliate of Freeport-McMoRan Oil & Gas LCC for $3.1 billion (OGJ Online, May 7, 2014; June 20, 2014).
The company this year also has divested natural gas assets in Jonah field in Sublette County, Wyo., to an affiliate of TPG Capital (OGJ Online, Mar. 31, 2014; Apr. 29, 2014); and Alberta's Bighorn to Jupiter Resources Inc. (OGJ Online, June 27, 2014).
Each transaction was worth $1.8 billion.
