Canada’s second-biggest natural gas producer, Encana Corp. announced that it has agreed to acquire Athlon Energy Inc. The $5.93 billion all-cash purchase will give the Calgary-based company a major foothold in Texas, the largest oil-producing region of the United States.
Athlon produces about 30,000 barrels per day of oil in the Permian Basin in Texas. Its largest shareholder is Apollo Global Management LLC, a private equity firm.
Encana is paying Athlon shareholders $58.50 per share, which represents a 25% premium on the oil company’s closing price on September 26th. In the deal, Encana assumes a $1.15 billion long-term debt.
Encana says it expects to invest $1 billion on the Permian Basin in 2015, thus increasing production to 50,000 per day. The company says its acquisition will be self-funding by 2016.
Mr. Suttles said the Athlon purchase will advance Encana’s goal for crude and petroleum liquids production by two years.
According to the Energy Information Administration, the Permian Basin is the largest oil-producing region in the United States, even beating output from the Gulf of Mexico. From 2007 to 2013, crude production in the basin jumped by 60% to 1.35 million barrels per day.
This is Encana’s largest acquisition since it was formed in 2002 by a merger between Pan Canadian Petroleum Ltd. and Alberta Energy Corporation.
Doug Suttles, Encana President & CEO, said:
“This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America’s top oil plays. The Athlon team has built an exceptional asset with massive running room that includes greater than 10 years of drilling inventory with up to 11 potential productive horizons of high-margin liquids.”
Bob Reeves, Chairman, President & CEO of Athlon, said:
“With a commitment to excellence and an unwavering focus on results, the Athlon team has established a track record of acquiring high-quality assets, applying extensive technical expertise as a top-tier operator and creating tremendous value for our shareholder. Through tireless dedication and hard work, our team has built a high rate-of-return oil manufacturing process in the heart of the world-class Midland Basin. With Encana’s exceptional resources and the collective expertise of both teams, the next phase will accelerate development and ultimately realize the full potential of the deep inventory of premier projects.”