Encana Sells $1 Billion of Shares Eyeing Permian Expansion

  • Banks underwriting sale led by Credit Suisse, JPMorgan Chase
  • Canadian producer sells 107 million shares at $9.35 each

Encana Corp., the Canadian oil and natural gas producer, is selling about $1 billion of shares to fund drilling in Texas next year and repay debt.

The company agreed to sell 107 million shares at $9.35 apiece through underwriters led by units of Credit Suisse Group AG and JPMorgan Chase & Co., Calgary-based Encana said in a statement on Monday after the close of regular trading on North American markets. An additional 16.05 million shares can also be purchased, as part of the deal. The shares fell as much as 6.9 percent in New York on Tuesday to $9.18, the lowest intraday since Aug. 11. They traded at $9.29 as of 11:57 a.m.

Encana joins producers including Crescent Point Energy Corp. in tapping equity investors in recent weeks to fund drilling as U.S. crude is up about 65 percent from its February low. Most of Encana’s investment next year will be targeted toward increasing output in the Permian Basin in West Texas, the largest U.S. oil field. The company may look at acquisitions, in addition to growth from its existing assets, according to Desjardins Capital Markets.

“Our sense is that speculation of potential acquisitions could also remain a point of debate for investors going forward,” Kristopher Zack, an analyst at Desjardins based in Calgary, wrote in a research note, adding that any purchases would probably be in the U.S. Encana doesn’t have any debt maturities until 2019, he said. “In our view, this increases the incentive to improve the balance sheet through cash flow growth—both organically and possibly through acquisitions—which could also provide additional torque to higher commodity prices.”

One of Canada’s largest gas producers, Encana has increasingly focused its attention on boosting oil and petroleum liquids production from shales including the Permian, where it established a position with the 2014 purchase of Athlon Energy for $7.1 billion. The company said it aims to double the number of wells on stream in the Permian in 2017, compared to this year.

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