Doug Suttles, CEO of Encana Corp.Jeff McIntosh/The Canadian Press
Encana Corp.'s search for liquids-rich growth took it to one of the most famous regions in North America, the Permian basin. Once it got there, the company found Athlon Energy.
There is no indication that Athlon was for sale. The company was growing, had cash, was raising guidance. This has the hallmarks of Encana chief executive officer Doug Suttles and his advisers identifying the company they wanted and moving fast to get it.
It's an ambition – grow in liquids – matched with firepower and speed.
Encana signalled it had something in mind a few weeks ago when it announced a huge and unexpected sale of the rest of its stake in PrairieSky Royalty Ltd. The timing was great, at a market high for energy stocks. Even so, having $7-billion of cash on the Encana balance sheet was going to be a return-killer, so there had to be a plan.
Encana said in its release that it had identified the Permian basin last year as its growth target. The next step was finding Athlon.
The purchase is all about speed. It moves Encana to its goal of 75 per cent liquids production two years ahead of plan, by 2015 instead of 2017.
The details of the yet-to-be-filed merger agreement will signal whether this truly was a rifle shot by Mr. Suttles at the one company he wanted. If Athlon was indeed not auctioned, look for measures such as a go-shop clause to enable the Athlon board to satisfy shareholders that the market is fully tested.
Even if the board does now look for topping bids, it's hard to see Mr. Suttles losing its price. Encana is friendly with the target and has a lock-up agreement with Apollo Global Management, which owns more than a third of Athlon.