Encana Corp. has agreed to sell oil and natural gas assets to Birchcliff Energy Ltd. for $625-million in the latest sign that a freeze on deal flow in the oil patch is thawing.
Under the deal, Birchcliff will pick up oil and gas assets in northwestern Alberta, lifting its output by a third to roughly 65,000 barrels of oil equivalent per day.
To fund the acquisition, it plans to issue $530-million in shares in a bought deal, plus another $18.8-million in stock to billionaire investor Seymour Schulich in a private placement, according to a statement on Tuesday.
Encana said the sale of its Gordondale assets will allow it to reduce transporation and processing costs by $100-million.
No money had been allocated this year for drilling in the area, but the company said it still expects to grow liquids production in the Montney play to 50,000 barrels per day by the end of 2018 following the sale.
The deal adds to a string of recent transactions in the oil patch, reflecting growing confidence among dealmakers in a price recovery as well as efforts by producers to mend strained finances.
U.S. crude for August delivery on Tuesday slipped 11 cents (U.S.) to $49.85 a barrel - less than half of what it fetched in mid-2014 but well above lows reached earlier this year. Analysts and bankers had cited weak prices for sluggish deal flow, but the pace has quickened in recent weeks.
This month, Suncor Energy Inc. raised $2.5-billion (Canadian) in a share sale to fund its acquisition of another 5-per-cent interest in the Syncrude Canada Ltd. oil sands project. The company said it would also seek out "opportunistic growth transactions."
Penn West Petroleum Ltd. sold its Saskatchewan oil assets to Teine Energy Ltd. for $975-million, with proceeds used to pay down debt. And this week, Athabasca Oil Corp. sold a royalty interest in its bitumen assets to shore up its balance sheet.
For Birchcliff, the deal's price tag represents about 65 per cent of its market capitalization of about $1-billion as of Tuesday. The company said it plans to increase capital spending by 35 per cent to $140-million this year.
The bought deal is co-led by National Bank Financial Inc., Cormarck Securities Inc., GMP Securities L.P. and Bank of Nova Scotia. Birchcliff is selling 84.8 million shares at $6.25 each - a steep discount to the closing price of $6.80 on Tuesday.
With a file from Jeffrey Jones