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The Globe and Mail

Encana aims to raise $860-million with PrairieSky IPO

CEO Doug Suttles

Todd Korol/The Globe and Mail

Encana Corp. wants to raise over $860-million as it creates a new dividend-paying energy company in Alberta – one that could be valued at about $3.4-billion.

The natural gas outfit plans to spin out some of assets into a new company called PrairieSky Royalty Ltd. Encana hopes to garner between $23 and $26.50 a share for PrairieSky, meaning the parent company would pocket between $747.5-million and $861.3-million after the initial public offering. Encana, which released details of PrairieSky's restated preliminary prospectus Wednesday, plans to hold on to 75 per cent of the new company after the initial public offering.

Encana plans to sell 32.5 million shares in the IPO, which means PrairieSky would be worth between $2.99-billion and $3.44-billion, based on the range of $23 to $26.50 a share that the natural gas company hopes to rake in.

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The new company, which will have 130 million shares outstanding, is expected to pay a dividend of $1.27 a share, Encana said in its marketing documents.

PrairieSky will consist of Encana's so-called mineral fee title land, covering 5.2 million acres across Alberta. The company does not have to pay the government royalties from energy extracted on these assets, a hangover from a deal struck in the 1880s with one of Encana's predecessor companies. PrairieSky's land sits in some of the most popular conventional oil and natural gas plays in Alberta, including the Cardium and Viking zones. Its land currently produces nearly 50 per cent natural gas, with the rest split between oil and gas liquids.

PrairieSky is designed to collect cash from other energy companies operating on the land, then distribute a large amount of that to its own shareholders. (Encana said it had about 300 lessees in 2013). If the company existed in 2013, its dividend would have been $1.27 a share, according to marketing documents. The payout ratio would have been 85 per cent, Encana said.

The business' free cash flow reached $195-million or $1.50 a share in 2013, Encana said.

Encana expects the deal to be priced the week of May 19, and close the week after that. The company will launch with $37.7-million in the bank and an available credit facility of $100-million, Encana said.

Encana previously announced that Andrew Phillips will serve as PrairieSky's president and chief executive officer. Mr. Phillips was most recently head of Home Quarter Resources Ltd., a private oil and gas company. Geoff Barlow, formally of Chinook Energy Inc., will be PraireSky's chief financial officer, the marketing documents said.

Doug Suttles, Encana's CEO, had previously announced plans to create PrairieSky as he tries to focus Canada's largest natural gas outfit. PrairieSky was previously known as Encana's Clearwater royalty business.

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Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are co-leading and serving as joint book runners for the IPO's syndicate. The deal comes with a 15 per cent overallotment option. Encana will hold 71.25 per cent of PrairieSky if the overallotment is exercised.

PrairieSky's holds the mineral fee title land because it was given to Canadian Pacific Railway by Ottawa in the 1880s in exchange for building the railway to the Pacific. Onetime CP unit PanCanadian Energy had the oil and gas rights to the acreage when it merged with Alberta Energy Co. at the start of the last decade to form Encana.

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