As part of a plan to cut assets and focus operations on five shale-focused growth areas, Canada’s largest natural gas producer, EnCana, will sell its properties in Wyoming’s Jonah natural gas field to an affiliate of private equity firm TPG Capital for $1.8 billion.
"This transaction is consistent with our strategy," says Doug Suttles, Encana president and CEO. "With the divestment of Jonah, we are unlocking value from a mature, high-quality asset and allowing our teams to focus on our five core growth areas and continue with execution of our new strategy."
In June 2013, Suttles was chosen to lead the company into its next phase of growth and development. His restructuring plan is designed to reduce the company’s dependence on natural gas and refocus on fields with reserves high in oil and natural gas liquids.
Not including carry capital, the company will accelerate its investment in high return liquids, allocating roughly 75% of its $2.4-$2.5 billion 2014 captial spending to its five core growth assets. In Canada, the company is focused on the Montney in British Columbia and the Duvernay in Alberta. In the US, the company is looking to accelerate efforts in the DJ Basin in Colorado, the San Juan Basin, and the Tuscaloosa Marine Shale.
Going forward, in 2014, the five core assets are expected to generate nearly 45% of total pre-hedge upstream operating cash flow from roughly 25% of total production, as noted in a March 2014 EnCana corporate presentation.
The Jonah properties, located in Sublette County, comprise a total productive area of about 24,000 acres and over 1,500 active wells. Estimated year-end 2013 proved reserves for Jonah totaled approximately 1,493 billion cubic feet equivalent (bcfe). The transaction also includes over 100,000 undeveloped acres adjacent to Jonah known as the Normally Pressured Lance (NPL) area.
TPG expects to retain employees currently working in connection with the Jonah field. The office near Pinedale, Wyoming will be maintained and a second office opened in Denver as plans are to continue to invest in the field and adjacent acreage.
The transaction is subject to satisfaction of normal closing conditions, as well as regulatory approvals, and is expected to close in the second quarter of 2014. Evercore and Davis Graham & Stubbs LLP served as advisors to Encana. Vinson & Elkins LLP advised TPG.