CALGARY -- Encana Corp. is speeding along plans to shift its focus toward lucrative liquids with a US$7.1-billion deal to buy Athlon Energy Inc., giving it an entry into the oil-rich Permian formation in Texas.
The acquisition of Athlon Energy announced Monday includes nearly US$6 billion in cash and the assumption of more than US$1 billion in debt.
The transaction brings Encana's earlier target of deriving three quarters of its cash flow from liquids by 2017 two years closer, said CEO Doug Suttles.
"In some ways we're almost pinching ourselves how quickly we've gotten here. We're very, very pleased," said Suttles, a former BP executive who unveiled a sweeping overhaul to Encana's strategy nearly a year ago.
"I don't think it was a predictable outcome at this pace. I think it was something we thought would take a number of years."
The Calgary-based company (TSX:ECA) has been eyeing a deal in the Permian for roughly a year.
It considers the region -- where Suttles noted his oilman grandfather plied his trade back in the 1930s -- one of the top resource plays in North America.
This is the second big oil deal Encana has done this year in Texas, following a US$3.1-billion deal with Freeport-McMoRan for acreage in the Eagle Ford shale announced in May.
Encana had been known as a natural gas-centred player, a challenging strategy amid a prolonged price slump. But with Suttles' arrival last year, the focus shifted to more valuable oil and natural gas liquids.
With the Athlon deal, Encana aims to produce 250,000 barrels per day of liquids by 2017, a sharp increase from the 50,000 barrels per day it churned out last year.
Athlon's shareholders are being offered US$58.50 per share cash, for a total of US$5.93 billion.
Shares in the company (NYSE:ATHL) jumped about 25 per cent on Monday, rising $11.59 to US$58.32 on the New York Stock Exchange. In Toronto, Encana's shares closed up 47 cents at C$24.06.
Encana says the Athlon deal will add the equivalent of about 30,000 barrels of oil per day of production focused in the Midland Basin, part of the Permian formation. It says that can grow substantially, with 5,000 possible drilling locations and up to three billion barrels of resource potentially in the ground.
The company intends to invest at least US$1 billion in the play and ramp up production to at least seven horizontal rigs by the end of 2015.
Last week, Encana sold its remaining stake in PrairieSky Royalty Ltd. (TSX:PSK) for about $2.6 billion to a syndicate of underwriters.
PrairieSky has a big royalty land position in Alberta that was spun off from Encana through an initial public offering in May.
There had been suggestions the recent PrairieSky sale was a sign Encana was winding up to make a major move.
"The strengthened balance sheet provides Encana 'dry powder' to act opportunistically to accelerate its liquids focused strategy," CIBC World Markets analyst Arthur Grayfer wrote in a note to clients ahead of Monday's announcement.
Suttles said Monday one did not have anything to do with the other.
"The timing is just fortuitous," he told reporters.
The CEO did not rule out Encana doing more deals to bolster its portfolio, but declined to give specifics.
"An oil and gas company in my view at least has to always pay attention to its portfolio. So it's something you're never done with and it's something we'll continue to look at."
