Encana Corp. is selling off natural gas assets in Louisiana, a deal that represents one of the largest upstream acquisition and divestiture transactions in 2015.
The Calgary-based company announced Aug. 25 that its wholly-owned subsidiary, Encana Oil & Gas (USA) Inc., has reached an agreement to sell its Haynesville natural gas assets in northern Louisiana to GEP Haynesville LLC (GeoSouthern), a joint venture formed by GeoSouthern Haynesville LP and funds managed by GSO Capital Partners LP.
Total cash consideration to Encana under the transaction is $850 million (USD). In addition, through the transfer of current and future obligations, Encana will reduce its gathering and midstream commitments, which will be substantially complete through 2020, by approximately $480 million on an undiscounted basis. Further, Encana will transport and market GeoSouthern’s Haynesville production on a fee for service basis for the next five years.
Encana will use the total cash consideration to reduce its net debt, further strengthening its balance sheet.
Consistent with its strategy, Encana remains focused on growing high margin production. Over 80 percent of 2015 capital will be invested in the company’s four most strategic assets in the Permian, Eagle Ford, Duvernay and Montney. During the first half of 2015, Encana’s Haynesville assets produced an average 217 million cubic feet per day (MMcf/d), contributed approximately 9 percent to companywide production and less than 2.5 percent to Encana’s first half operating cash flow, excluding hedges.
“This is another step in advancing our strategy. By further focusing our portfolio, we are making Encana more efficient as we proceed through the second half of 2015 and into 2016,” said Doug Suttles, Encana president and CEO. “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.”
Encana’s Haynesville natural gas assets include approximately 112,000 net acres of leasehold, plus additional fee mineral lands. Collectively, they represent Encana’s total position in northern Louisiana. Encana operates approximately 300 wells in the area. Estimated year-end 2014 proved reserves were 720 billion cubic feet equivalent (Bcfe) of natural gas.
The sale of Encana’s Haynesville assets is subject to satisfaction of normal closing conditions, as well as regulatory approvals and post-closing adjustments, and is expected to close in the fourth quarter of 2015 with an effective date of Jan. 1, 2016.
Jefferies LLC, Credit Suisse and Gordon Arata McCollam Duplantis & Eagan LLC advised Encana on the transaction. GeoSouthern was advised by Kirkland & Ellis and Thompson & Knight.