Encana Corp. on Thursday said it agreed to buy fellow oil-and-gas company Newfield Exploration Co. in a stock swap valued at about $5.5 billion. In addition, Encana will assume $2.2 billion of Newfield net debt.
Newfield, is an independent energy company based in The Woodlands, Texas, primarily focused in the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota and the Uinta Basin of Utah. The company also has producing oil assets offshore China.
Calgary-based Encana said it would issue 2.6719 common shares for each Newfield share. The deal values Newfield at about $27.36 a share, a roughly 35% premium based on Wednesday’s U.S. closing prices of $10.24 for Encana and $20.20 for Newfield.
Encana shareholders will own 63.5 percent of the combined company and Newfield investors will hold 36.5 percent. Newfield will gain two spots on the Encana board.
The deal will give Encana positions in the Stack and Scoop shale fields in Oklahoma, the Bakken region of North Dakota and the Uinta play in Utah. The all-stock deal also will create North America’s second-largest shale explorer, the companies said in a statement.
The acquisition signals a sea-change for North American oil producers that spent the last few years building so-called pure-play drillers focused on a single shale region such as the Permian Basin on West Texas and New Mexico. For its part, Encana had spent years whittling its holdings to a core group of fields: the Permian, Eagle Ford, Montney and Duvernay.
Since its 2009 spinoff of oil producer Cenovus Energy Inc., Encana has sought to reduce its reliance on gas, and the Newfield acquisition represents the biggest step so far in that direction.
Lee K. Boothby, Newfield chairman, president and CEO, said he believes the combination with Encana is the best path forward for Newfield, which has been operating for about 30 years.
“The combination of the two companies provides our investors with the very attributes that should be differentiated in today’s energy sector—operational scale, proven execution in development of large, liquids-rich onshore resource plays, a peer-leading cost structure and an exceptionally strong balance sheet,” Boothby said in a statement. ”We strongly believe that the synergies between these two organizations will create a dominant diversified resource player that is positioned to drive future value.”
Encana intends to raise the dividend by 25% and expand its share buyback program to $1.5 billion following closing of the transaction, which will be funded with expected non-GAAP free cash flow and cash on hand, according to the company press release.
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