Nexen Inc. agreed to buy EnCana Corp's British-based unit, including a 43-per-cent stake in the Buzzard field in the North Sea, for $2.1-billion (U.S.) in cash.
Calgary-based Nexen said it will pay for the assets with $600-million in cash on hand, as well as bridge loans provided by TD Securities. Analysts from credit rating agencies Moody's Investors Service and DBRS changed their outlooks on Nexen's long-term debt to "negative" from "stable."
One of the largest North Sea oil finds since 1993, Buzzard was being developed by a consortium led by EnCana. The sale also includes interests in the Scott and Telford oil fields.
"Our strategy is to grow real value for shareholders," said Charlie Fischer, Nexen's president and chief executive in a press release.
"This acquisition will establish us as a significant player in the region, with concentrated assets, infrastructure and significant exploration and development potential for future growth," Mr. Fischer said. "It will also add significant high margin reserves and production, diversify our world-wide portfolio by adding strong assets in a stable jurisdiction and complement the longer cycle-time projects we have in the Athabasca oil sands, offshore West Africa, and the deep-water Gulf of Mexico."
EnCana said it plans to use the proceeds from the sale to repay debt and for a share buyback. The company is exiting the region to focus on natural gas projects and oil sands in North America. EnCana will record a $1-billion after-tax gain on the sale, which is expected to be completed on Dec. 1 of this year.
"We are more convinced than ever that the future of oil and gas growth in North America resides in unconventional assets. It's what we know best and it is what we are best at," said Randy Eresman, EnCana's chief operating officer, said.
The Buzzard field, about 100 kilometres off the Scottish coast, is expected to start producing oil in 2006, and Nexen will spend about $650-million in development.
Nexen said the field will reach peak production in 2007, with its 43-per-cent stake amounting to output of about 80,000 barrels a day.
The Scott and Telford fields began producing in 1993 and 1996, respectively. Nexen's stakes in the fields amount to production of approximately 19,000 barrels of oil equivalent per day. The company is expanding its drilling program to increase production and reserves in the near term. The fields are 190 kilometres northeast of Aberdeen.