Encana buys Newfield Exploration for $5.5B
Company’s stock slips due to investor concerns over all-stock deal
Encana Corp. agreed to buy U.S. shale producer Newfield Exploration Co. in its largest-ever acquisition, inflaming investors’ ire by reversing course on a strategy of slimming down its oil and gas portfolio.
The $5.5 billion (U.S.) purchase will give Encana positions in the Stack and Scoop shale fields in Oklahoma, the Bakken region of North Dakota and the Uinta play in Utah, creating North America’s second-largest shale explorer, the companies said in a statement on Thursday.
Yet, Encana’s stock plunged over concerns the all-stock deal will dilute investors and saddle the driller with unfamiliar assets after years of whittling the portfolio to a a handful of U.S. and Canadian fields.
The shares slid as much as 18 per cent to $11.03 (Canadian) in Toronto, the big-
gest intraday plunge on record, erasing about $2 billion in market value.
The acquisition signals a sea change for North American oil producers that spent the last few years building so-called pure-play drillers focused on a single shale region such as the Permian Basin in West Texas and New Mexico. It also pushes deal-making this year among North American oil producers to a four-year high of $135.9 billion (U.S.), following major acquisitions by BP PLC, Concho Resources Inc. and Chesapeake Energy Corp.
For Encana, the deal signals a reduced reliance on natural gas and resources in Canada, where pipeline bottlenecks have weighed on prices. Chief executive officer Doug Suttles now envisions the Calgary-based company operating in a “headquarterless model,” with major offices in the Houston area and Denver overseeing nearby operations.
Encana pledged significant investor benefits from the takeover, including a 25-per-cent dividend increase and an expansion of buybacks. It also stressed that the deal adds to its key metric of cash flow per share.