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Encana to Monetize Arkoma Assets to Focus on Core Plays

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In a bid to streamline portfolio, Encana Corporation (ECA - Free Report) is set to jettison its acreage in Oklahoma’s Arkoma Basin for $165 million to an undisclosed buyer. The Canadian energy explorer got hold of Arkoma assets on completion of the acquisition of Newfield Exploration earlier this year. Subject to satisfactory closing conditions and regulatory approvals, the transaction is set for closure in third-quarter 2019.

The assets to be sold include 140,000 net acres in the Arkoma Basin, with a production capacity of around 77 million cubic feet per day (98% gas). As we know, the company has successfully re-adjusted the asset base via acquisitions and divestments, transitioning to the more profitable crude over a couple of years. Of late, Encana is more focused on oil production from Permian and Montney shale plays, along with the Anadarko play (which was inherited by Encana after the completion of the Newfield buyout), instead of the natural-gas heavy Arkoma Basin. As such, the divestment deal is in sync with the company’s goals of crude transition and monetization of non-core assets to strengthen the balance sheet.

Last month, Encana inked a deal to terminate the production sharing contract with CNOOC Limited (CEO - Free Report) — exiting China operations — in a bid to optimize portfolio and devote its production spending on core plays and a fewer geographical areas. 

Encana — which is riding high on impressive production from core assets namely Permian, Montney and Anadarko — delivered the sixth consecutive earnings beat in the last reported quarter. The company is targeting 15% liquids production growth from core assets, while being within cash flows. The management team also expects its cash flow to soar about 300%, with margins doubling over the next five years.  

Notably, Encana — which is committed to return cash to its shareholders — has already bought back $1.037 billion shares in 2019 and is about to repurchase another $213 million worth of stock in July to complete the $1.25-billion buyback program.

Zacks Rank and Key Picks

Encana currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the same industry include Crescent Point Energy Corporation (CPG - Free Report) and Enerplus Corporation (ERF - Free Report) . While Crescent sports a Zacks Rank #1 (Strong Buy), Enerplus carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

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