On Tuesday, in the course of morning trade, shares of Encana Corporation (NYSE:ECA) surged 0.51 points or 8.66%. The firm is now trading at $6.34, with the market capitalization of $5.34B.
According to the latest news report, before the market open on Tuesday, Encana Corporation, declared that its wholly owned partner, Encana Oil & Gas (USA) Inc., has reached a contract to sell its Haynesville natural gas assets, located 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 US$850 million. 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 about US$480 million on an undiscounted basis. Further, Encana will transport and market GeoSoutherns 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 companys four most planned assets in the Permian, Eagle Ford, Duvernay and Montney. During the first half of 2015, Encanas Haynesville assets produced an average 217 mmcf/d, contributed about 9 percent to companywide production and less than 2.5 percent to Encanas first half-operating cash flow, not taking into account 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 & CEO. This transaction delivers noteworthy proceeds that well 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. Id like to congratulate GeoSouthern on securing a high-quality natural gas asset together with a talented, safety-conscious field staff.
Encanas Haynesville natural gas assets comprise about 112,000 net acres of leasehold, plus additional fee mineral lands. Collectively, they represent Encanas total position in northern Louisiana. Encana operates about 300 wells in the area. Estimated year-end 2014 proved reserves were 720 billion cubic feet equivalent (Bcfe) of natural gas.
The sale of Encanas Haynesville assets is subject to satisfaction of normal closing conditions, in addition to regulatory approvals and post-closing adjustments, and is predictable to close in the fourth quarter of 2015 with an effective date of January 1, 2015.
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.
The past week has not been so good for Encana Corporation, at the stock markets. The firm’s shares have declined by -7.73% in the past week while it has dropped down by -19.67% in the past four weeks. The year to date performance as recorded by the firm stands at -54.3% while it has fallen by -52.51% in the past three months.
Looking into other metrics of the company, 29 analysts have given a short-term price target of $12.66 for the firm. According to the analysts estimate, the standard deviation has been estimated to fluctuate at $12. The higher price target and the lower price target are estimated at $25 and $7.21.
The analysts have given a 2.50 (Hold) rating to the firm, on an average.
Encana Corporation, together with its auxiliaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in plays, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; Clearwater in central and southern Alberta; Deep Panuke in offshore Nova Scotia; Cadomin/Doig in northeast British Columbia; Horn River in northeast British Columbia; and Granite Wash/Doig in northwest Alberta.