Encana has made huge leap into the Eagle Ford shale play. Through its subsidiary Encana Oil & Gas (USA) Inc., the company has reached an agreement with Freeport-McMoRan to purchase 45,500 acres in the southern Texas counties of Karnes, Wilson and Atascosa for about $3.1 billion (USD).
The acreage produced approximately 53,000 barrels of oil equivalent per day (boe/d) in the first quarter of 2014 and has an estimated drilling inventory of more than 400 locations, with 355 wells currently producing. The area is in the heart of the oil-rich Eagle Ford region. The deal will approximately double the company’s current oil production.
“Gaining a position in a world class, oil-rich resource play like the Eagle Ford accelerates the transition of our portfolio and underscores our investment focus on high margin assets,” said Doug Suttles, Encana president and CEO. “With this transaction, combined with our announced divestments of Jonah and properties in East Texas, we’re replacing natural gas production with high margin oil and liquids production.”
This transaction directly aligns with Encana’s strategy by adding a sixth core growth asset in an established oil production basin that provides immediate impact on company-wide returns. The Eagle Ford is among the most prolific and profitable resource plays in North America. In the first quarter of 2014, production from the acreage to be acquired by Encana included approximately 46,000 barrels per day (bpd) of total liquids production and 44 million cubic feet per day (MMcf/d) of natural gas, generating operating cash flow of $327 million, with about 75 percent of the total production volumes for the period being oil.
The Eagle Ford assets offer a large contiguous land position in the core of the play, fitting well with Encana’s technical expertise in developing resource plays. Through the second half of this year, Encana plans to start ramping up its activity in the play and exit 2014 with at least four drilling rigs running.
“In addition to the near-term growth potential of this asset, we believe there are many opportunities to enhance the value of this world class position by applying our proven resource play expertise,” Suttles said. “Overall, this acquisition fully aligns with our strategy announced last November. It will significantly boost our oil and liquids output, improve our ability to generate cash flow and enhance our portfolio of world class resource plays.”
The transaction is subject to regulatory approval and is expected to close by the end of the second quarter 2014 with an effective date of April 1.