Nov. 01–The Canadian energy company Encana said Thursday it will buy The Woodlands-based Newfield Exploration Co. for $5.5 billion in an all-stock deal that represents the third Houston-area oil producer acquired this week.
Encana Chief Executive Doug Suttles said the company will maintain Newfield’s headquarters to run much of its U.S. shale operations, although analysts said they expect some layoffs out of the roughly 600 employees in The Woodlands.
Earlier this week, Denbury Resources of Plano bought Houston’sPenn Virginia for $1.7 billion and Oklahoma City’sChesapeake Energy agreed to acquire WildHorse Resource Development of Houston for $3 billion.
The Newfield deal bolsters Encana’sU.S. presence with Newfield’s holdings in oil-producing regions, especially in Oklahoma and North Dakota. The expanded Encana would immediately become one of the top shale producers in North America.
While Encana is headquartered in Calgary, the company has more oil and gas activity in Texas than Newfield. Encana operates in both the Permian Basin and the Eagle Ford shale. Suttles said the deal will leave Encana with significant operations in three major oil regions, Permian, Oklahoma and in western Canada, home of the Montney shale.
The goal is to create a combined company with the best mix of shale oil assets in North America, Suttles said. In announcing the merger, Encana also said it is raising its dividend payout to investors by 25 percent and increasing its share buyback program.
“Being a multi-basin company means we have flexible and dynamic capital allocation, rapid learning transfer across our plays, and continuous innovation,” Suttles said in a conference call.
When the deal closes, research firm Wood Mackenzie estimated, Encana will rate as the sixth most prolific shale producer in North America, close behind companies such as Chesapeake Energy of Oklahoma City, Exxon Mobil and EOG Resources of Houston.
Newfield CEO Lee Boothby called the deal the best path forward for the company, which is selling at a premium and returning more value to shareholders. The acquisition also includes the assumption of $2.2 billion in Newfield debt, creating a total deal value of $7.7 billion.
“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,” Boothby said. “The merger will accelerate the development of these assets and as a result, capture full value for our owners.”
A wave of industry consolidation is coming, so it makes sense for the companies to value larger scale, said said Neal Dingmann, an energy analyst with SunTrust Robinson Humphrey.
Newfield’s prime operating area is about 360,000 net acres in Oklahoma’s oil-rich SCOOP and STACK shale plays. Encana leans toward natural gas production while Newfield is oil-focused, so the combination would shift Encana’s production toward higher-priced crude oil. Encana is Canada’s largest natural gas producer.
Newfield employs about 1,000 people nationwide, but the majority are in The Woodlands because — during the recent oil bust — Newfield closed its offices in Denver and Tulsa, moving a lot of workers to the Houston area.
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 sale is expected to close by the end of March.
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