Encana sells Colorado natural gas assets to pay down debt

Encana announced on Friday it will sell its Piceance gas assets located in northwest Colorado to Caerus Oil and Gas LLC. CBC photo.

Encana sale valued at US$735 million

Calgary-based Encana corporation announced on Friday a deal to sell its Piceance gas assets to Denver-based Caerus Oil and Gas LLC for USD$735 million.

The sale of the assets includes the takeover of 55o,000 leased acres, 3,100 wells and Caerus will take over $430-million worth of contractual pipeline obligations.

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The deal will help Encana address weak commodity prices and allow the firm to pay down debt, which was reported to be $3.8 billion at the end of March.

“This transaction advances our strategy, makes the company more efficient and delivers significant proceeds that we will use to further strengthen our balance sheet,” Encana chief executive Doug Suttles said in a news release.

Encana based its 2017 profit-margin estimates on price assumptions of $55/barrel for WTI and $3 per million Btu for benchmark North American gas. The Globe and Mail reports almost three-quarters of the company’s production is hedged for the rest of this year.

Last month, Suttles said the company was likely to meet its profit targets at $50/barrel oil, which is close to the average forecast by the US Energy Information Administration for 2017.

Between 2017 and 2021, Encana plans to boost its production by 60 per cent while reducing costs and increasing cash flow.

The company’s shares traded above $17 on the Toronto Stock Exchange in January, but their value has since dropped to the $12 range this week.  The sale of the Piceance gas assets drove shares up to $12.52 on Friday.

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Chris Cox, analyst with Raymond James told the Globe and Mail that Encana shares had underperformed.  Cox says the lacklustre results reflects “a balance sheet that is still relatively more [leveraged] than peers – along with concerns regarding the company’s funding outlook into next year, set against the backdrop of the recent deterioration in oil prices.”

Cox added that the deal with Caerus “should help provide added comfort around the company’s financial position and further focuses the story toward the attractive ‘Core 4’ assets.”

Encana’s four core assets are located in the Permian, the Montney, Eagle ford and Duvernay.  The company’s non-core assets include the Horn River Basin in northeastern BC and the Deep Panuke natural gas project in Nova Scotia, according to RBC analyst Greg Pardy.

Last month, Halifax’s The Chronicle Herald reported that the company had expressed interest in equipment needed to permanently dismantle and cap wells at the project site, located 250 kilometres southeast of Halifax.

According to Encana spokesman Jay Averill, despite a request for the equipment for between 2019 and 2021, the company has not set a definite closure date.

“Any decisions on specific timing for this work will be made at a later date,” he told the Globe and Mail.