Canadian oil and gas producer Encana Corporation (ECA - Free Report) has entered into an agreement to divest its Gordondale assets in northwestern Alberta to Birchcliff Energy for C$625 million. This sale includes about 54,200 net acres of land with wells having a production capacity of about 25,200 barrels of oil equivalent a day (65% natural gas).
Birchcliff plans to partially fund the purchase by selling C$530 million worth of shares to underwriters, who will then sell them to the public. Also,an investment of C$18.75 million will be made by major shareholder Seymour Schulich, who will purchaseadditional shares worth $19 million.
Encana’s Benefits from the Deal
This divestment is expected to assist Encana in strengthening its balance sheet and provide financial flexibility, especially in the current low commodity price environment. The deal is also expected to help the company avoid future spending commitments of C$100 million on the property, which in turn, will help it focus on core areas in Canada and the United States.
The sale of Gordondale resources, which is situated in the Montney basin, will leave Encana with 9,000 potential drilling locations. Notably, two-thirds of the wells that the company will retain are located in the condensate-rich part of the play.
Low Oil Prices Lead to Asset Sales
Asset divestitures are fairly common in the energy space in the wake of persistent weak oil and gas pricing environment. Many energy players are selling their assets to bolster financials. Given that the companies are not generating sufficient cash flows after selling crude at extremely low prices, divesting assets is one of the ways to improve cash balance and reduce debt.
Encana has announced the sale of nearly US$3 billion in assets since the end of 2014 and paid off about US$2 billion in debt. Moreover, the company has reduced its workforce by about half to 1,600 since 2013.
ENCANA CORP Price
About the Company and Zacks Rank
Calgary, Alberta-based Encana is a focused pure-play natural gas exploration and production company. It is the second-largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays. This provides the company with a low risk, long life, and sustainable growth profile.
As a result, Encana carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
Some better-ranked players from the broader energy sector are Braskem S.A. (BAK - Free Report) , McDermott International Inc. and Sasol Ltd. (SSL - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>