Encana Sells Louisiana Gas Land for $850 Million to Cut DebtBy
Company Will Reduce Gathering and Midstream Commitments
Encana to Ship Buyer's Haynesville Gas Output for Five Years
Encana Corp., in North America’s largest energy land deal of the year, agreed to sell natural gas properties in northern Louisiana for $850 million to a venture run by GSO Capital Partners LP and GeoSouthern Haynesville LP.
The properties in the Haynesville shale include about 112,000 acres (45,000 hectares) of land held by leases as well as additional fee-mineral lands, according to a statement from the Calgary-based company Tuesday. The assets produced an average of 217 million cubic feet a day from 300 wells in the first half of the year, about nine percent of Encana’s output, and contain the equivalent of about 720 billion cubic feet of gas reserves, the company said.
The Canadian energy producer, which is shifting its focus from gas to oil, said it will exit Louisiana with the deal and use the proceeds to pay down debt. Encana will also lower its commitments for gathering and transportation of fuel on nearby pipelines by about $480 million through 2020. It will receive a fee for transporting the venture’s gas output in the area for five years.
“This transaction delivers significant proceeds that we’ll use to strengthen our balance sheet,” Doug Suttles, Encana’s chief executive officer, said in the statement. “In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas marketing arrangement.”
The deal is larger than the $840 million sale of U.S. shale gas assets by a consortium led by Chesapeake Energy Corp. to FourPoint Energy LLC announced in July, making it the biggest North American energy land asset deal this year, according to data compiled by Bloomberg.
“Encana’s transaction appears to be in the ballpark with our expectation,” Greg Pardy, an analyst at RBC Dominion Securities Inc. in Toronto, wrote in a note on Tuesday. The company is receiving $3,900 per thousand cubic feet equivalent a day of production and $1.18 per thousand cubic feet equivalent of reserves, according to the note.
Analysts including Pardy had expected Encana to part with properties outside its primary operating areas to reduce debt that’s higher than its peers. The company had been trying to sell the Haynesville properties since at least April, people familiar with the process said at the time.
Encana is targeting more than 80 percent of its spending in 2015 on four shale oil and gas areas that it’s focused on in North America, including the Montney and Duvernay in Western Canada and the Permian and Eagle Ford in the U.S.
GeoSouthern Haynesville is a joint venture between GeoSouthern Energy Corp., a closely held exploration and production company, and GeoSouthern Energy Partners LP. GSO Capital is the credit-focused division of Blackstone Group LP, a private-equity firm.
Jefferies Group LLC, Credit Suisse Group AG and Gordon Arata McCollam Duplantis & Eagan LLC advised Encana on the deal, which is expected to close by the end of the year. GeoSouthern was advised by Kirkland & Ellis LLP and Thompson & Knight LLP.
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