Encana to acquire Newfield Exploration for $5.5bn

January 2019 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2019 Issue

Canadian oil & gas producer Encana Corp has agreed to acquire Texas-based natural gas liquids company Newfield Exploration Company in an all-stock deal valued at approximately $5.5bn. The merger will create a leading multi-basin company which would be in strong positions in North America’s three top-quality, liquids & oil weighted plays.

The two companies have entered into a definitive agreement which will see Encana also assume $2.2bn of pre-existing Newfield debt. Upon completion of the transaction, Encana shareholders will own approximately 63.5 percent of the combined company and Newfield shareholders own the remaining 36.5 percent. Two directors from the Newfield board will join the Encana board upon closing.

Under the terms of the deal, Newfield shareholders will receive 2.6719 Encana shares for each share of Newfield common stock held. The deal is expected to close in the first quarter of 2019, subject to regulatory and shareholder approval. Approval of the deal requires the support of a two-thirds majority vote of Newfield shareholders and a majority vote by Encana shareholders. As part of the deal, Encana will get greater access to the Anadarko basin as well as the Permian and Montney areas.

“This strategic combination advances our strategy and is immediately accretive to our five-year plan,” said Doug Suttles, Encana president and chief executive. “Our track record of consistent execution gives us confidence to accelerate and increase shareholder returns. I am very excited to lead the combined company and want to congratulate the team at Newfield on doing a tremendous job building premium positions in the core-of-the-core in each of their assets, particularly in the world-class, oil-rich, STACK/SCOOP. When combined with our cube development model, expected synergies and relentless focus on efficiency, we are positioned to deliver highly efficient growth and quality returns.

“Consistent with our focus on being in the best parts of North America’s best plays, our multi-basin portfolio will include large, premium, liquids weighted positions in three of North America’s highest quality, lowest supply cost basins; the Permian, STACK/SCOOP and Montney,” added Mr Suttles. “Our multi-basin portfolio provides a powerful competitive advantage, helping us manage risk, provide optionality to direct capital to our highest margin opportunities and transfer learnings across the business.”

“This transaction is the best path forward for our company,” said Lee K. Boothby, chairman, president and chief executive of Newfield. “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. We strongly believe that the synergies between these two organisations will create a dominant diversified resource player that is positioned to drive future value. The new organisation will be capable of efficiently developing high-value growth assets while delivering significant cash to shareholders. Throughout our 30-year history, Newfield has worked to create a strong portfolio of assets managed by some of the best and brightest people in the business. The merger will accelerate the development of these assets and as a result, capture full value for our owners.”

Encana revealed that the company also intends to raise its dividends by approximately 25 percent and expand its share buyback programme to about $1.5bn following closure of the deal.

The new Encana will be North America’s second-largest producer of unconventional resource, the company noted in a statement. Going forward, Encana expects liquids production to contribute over 50 percent of total company production, driving continued margin expansion and returns. Encana also noted that the deal would have an impact on immediate scale and value creation, with oil and condensate production up by over 54 percent and proved reserves up by around 85 percent.

Encana expects to generate $250m of expected annual synergies through greater scale, cube development and overhead savings.

Richard Summerfield