Encana Corp. leaves Louisiana shale

As part of the deal, Encana said it will provide midstream services to the newly sold assets for the next five years under a fee-based agreement.

Inc.is making the deal with GEP Haynesville LLC (GeoSouthern), a joint venture of GeoSouthern Haynesville LP and funds managed by GSO Capital Partners LP.

TPH said it still thinks Encana’s San Juan and Denver-Julesburg basin assets are on the table to sell, but the decline in oil prices “could delay transactions”. The company said it remains focused on growing high margin production and that over 80 per cent of 2015 capital will be invested in the company’s four most strategic assets in the Permian, Eagle Ford, Duvernay and Montney. “In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas marketing arrangement”.

“While the transaction also includes 112,000 net acres of leasehold, plus additional fee mineral lands, the flowing valuation metrics screen attractive when compared to a gas levered E&P like Chesapeake Energy (CHK) at $17,490 boe/d”. It is expected to close in the fourth quarter of 2015. GEP Haynesville will be positioned with significant financial flexibility to take advantage of the current market environment. The company was one of the largest private operators in the United States prior to the Devon deal and now has no debt outstanding, aside from an undrawn revolver.

“The transaction comps work out to ~$3,900/Mcfepd (~$5,600/Mcfepd if including discounted value of gathering commitment relief) for 217 MMcfpd of production (9% of 1H:15 production, 2% of cash flow), $1.18/Mcfe for 720 bcfe of proved reserves, or $7,600/acre for 112K acres”, noted analysts with Global Hunter Securities. “We are pleased to have the opportunity to partner with GeoSouthern as it develops assets in the core of the Haynesville play and further expands its business”, said Dwight Scott, Senior Managing Director, GSO Capital Partners. The company says it will see a quick infusion of cash from the sale, as well as about $480 million in savings through 2020. Collectively, they represent Encana’s total position in northern Louisiana.