Birchcliff to buy Encana’s Gordondale assets for $625 million (Can.)

Birchcliff Energy Ltd. has agreed to acquire 100% of fellow Calgary firm Encana Corp.’s Gordondale assets in northwestern Alberta for $625 million (Can.) in cash. The deal is effective Jan. 1, and expected to close by July 28.

The acquisition covers 91,833 gross (54,206 net) acres of land and associated infrastructure within Birchcliff’s Montney-Doig natural gas resource play in the Peace River Arch area of Alberta. Of that total, 46,233 gross (40,920 net) acres are core Montney lands with an average working interest of 89%.

Birchcliff says the assets include a large contiguous land base that fits between the firm’s existing Pouce Coupe and Gordondale properties. The properties feature 993 gross (929 net) potential future drilling locations, and 54 million boe of proved developed producing reserves, 106 million boe of proved reserves, and 191 million boe of proved plus probable reserves, an increase of 33%.

Forecast production from the assets for this year’s first half is 26,000 boe/d, of which 41% is oil and natural gas liquids. The assets have a base production decline rate of 20%, and limited new wells have been brought on production in recent years, with the last wells drilled in 2014.

On closing, Birchcliff will have a Montney-Doig land position of 263,151 gross (251,950 net) acres, including 145,106 gross (140,695 net) acres of undeveloped land.

As a result of the deal, the firm has increased its annual average production guidance for 2016 to 49,000-51,000 boe/d from 40,000-41,000 boe/d, lifting Birchcliff’s current production by 25%. Birchcliff will have total proved plus probable reserves 764 million boe.

As for Encana, through the transfer of current and future obligations, the firm is reducing midstream and downstream commitments by more than $100 million (Can.) on an undiscounted basis. No drilling or completions capital has been spent or was planned for the area in 2016.

Following the sale, Encana's Montney play will comprise 9,000 potential drilling locations with two thirds of those wells in the condensate-rich part of the play.

“We are tightening our portfolio and sharpening our focus in the Montney, where we expect to grow liquids production to 50,000 b/d by the end of 2018,” said Doug Suttles, Encana president and chief executive officer.

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