Encana Merges with Newfield Exploration for US$5.5 Billion

Energy producer Encana (TSX:ECA,NYSE:ECA) has entered into a definitive agreement to acquire all the common stock of Newfield Exploration (NYSE:NFX) for US$5.5 billion.

The deal between the two energy companies also includes Encana assuming Newfield’s US$2.2-billion net debt.

Dubbed a ‘strategic combination’, both Encana and Newfield are confident the partnership will create a leading multi-basin company focused on developing lucrative energy projects.

The synergistic collaboration is beneficial for both companies as it gives each access to three of North America’s highest-quality oil and liquids plays; the Permian, STACK/SCOOP and Montney.

“This strategic combination advances our strategy and is immediately accretive to our five-year plan,” Doug Suttles, Encana president and CEO, said in the announcement.

“Our track record of consistent execution gives us confidence to accelerate and increase shareholder returns. 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.”

The calculated merger will also create North America’s second-largest producer of unconventional resources. So far for 2018, both Encana and Newfield produced a combined 577,000 barrels of oil equivalent per day (BOE/d), including the production of roughly 300,000 barrels per day (bbls/d) of liquids production.

“This transaction is the best path forward for our company,” Lee Boothby, Newfield chairman, president and CEO, said. “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.”

There are also plans to raise dividends by 25 percent, and extend the current share buyback program to US$1.5 billion following the closing of the transaction, which is expected during the first quarter of 2018.

“We strongly believe that the synergies between these two organizations will create a dominant diversified resource player that is positioned to drive future value,” added Boothby. “The new organization will be capable of efficiently developing high-value growth assets while delivering significant cash to shareholders.”

Encana shares were down 16.74 percent on Thursday (November 1), trading at C$11.21. Meanwhile, Newfield’s shares were up 17.03 percent to US$22.28.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.