CALGARY – Encana Corp. expects to roughly double its oil production with the $3.1 billion acquisition of property in south Texas.
The Calgary energy producer said Wednesday that it has reached an agreement to acquire 45,500 net acres of oil-producing property in the Eagle Ford shale formation.
The deal with Freeport-McMoRan covers property which produced about 53,000 barrels of oil equivalent per day in the first quarter of 2014.
“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,” CEO and president Doug Suttles said in a news release.
“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,” Suttles said.
Encana said the Texas acreage has an estimated drilling inventory of more than 400 locations in the heart of the oil-rich Eagle Ford area, adding that Eagle Ford is recognized as being among the most 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 of total liquids production and 44 million cubic feet per day of natural gas, which generated an operating cash flow of US$327 million.
“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.”
Encana has sold some of its natural gas properties in Texas to an undisclosed purchaser for about $530 million as the company continues to pare down its portfolio. It also recently announced it will sell assets in Denver and Wyoming.
Encana has also said it has advanced its plans for spinning off a portion of its assets in Western Canada into a separate publicly traded business, PrairieSky Royalty Ltd. The new company doesn’t plan to directly develop or produce petroleum or natural gas, but will focus on attracting third-party investments to develop the properties.
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