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Encana sets PrairieSky IPO at $28, looks to raise $1.46-billion

Pump jacks pump oil at an Encana well near Standard, Alberta, May 12, 2014.

Todd Korol/The Globe and Mail

Encana Corp., the natural gas outfit in the midst of a makeover, on Thursday said it will rake in $1.46-billion as it spins off some of the company.

Encana released the final price for its PrairieSky Royalty Ltd. initial public offering, selling shares to investors for $28 a pop. This will put $1.46-billion in the company's pocket. Encana will retain 60 per cent of PrairieSky, less than it originally planned.

The share price exceeded Encana's expectations, highlighting how investors are hungry for companies expected to produce cash. It originally planned to sell PrairieSky shares for somewhere between $23 and $26.50, bringing in a maximum of $860-million. It most recently predicted the shares would sell for $26.50 and $28 apiece.

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Encana is selling 52 million shares in the new company, up from the original plan of 32.5 million.

The natural gas company, now led by Doug Suttles, could raise even more money. The banks running the deal have the option to purchase and sell 7.8 million more shares, which would make the deal worth $1.67-billion.

The deal makes it more valuable than Athabasca Oil Corp.'s $1.35-billion initial public offering in 2010. It would be the largest Canadian IPO since Sun Life Financial Inc.'s $1.8-billion float in 2000, according to Bloomberg.

Encana, the country's biggest natural gas producer, is spinning off the unit as part of a larger strategy to concentrate its resources on fewer assets around the continent, and its shares have gained ground in the process.

PrairieSky comprises Encana's mineral fee title land, covering 5.2 million acres in Alberta. The company does not pay the government royalties from resources extracted on the assets, because they are part of an 1880s land grant from Ottawa to Canadian Pacific Railway. CP once owned one of Encana's predecessors, PanCanadian Energy.

PrairieSky is designed to collect royalties and fees from other energy companies operating on the land, then distribute a large amount of that to its own shareholders.

TD Securities Inc. and CIBC World Markets Inc. are the joint book runners for the transaction.

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About the Authors

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More

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