Encana selling holdings in Colorado’s DJ Basin

A worker uses a headset and microphone to communicate with coworkers over the din of pump trucks, at the site of a natural gas hydraulic fracturing and extraction operation run by the Encana Oil & Gas (USA) Inc., outside Rifle, in western Colorado.

On Thursday the company announced it will be selling all of its oil and gas assets in Colorado’s Denver Julesburg Basin, to a joint venture owned by Canada Pension Plan Investment Board (CPPIB) and Denver-based private firm Broe Group.

The Canadian oil company drills for hydrocarbons primarily in Texas and Alberta shale formations.

The total cost of its DJ Assets, essentially all of which are in Weld County, is approximately $900 million.

“Our efforts to transform our portfolio, improve efficiency and grow margins are increasing returns and strengthening our balance sheet, positioning Encana for success throughout the commodity cycle”, Doug Suttles, Encana president and chief executive officer, said in a statement.

“The purchase price equates to just under $40,000 per flowing boe and does not ascribe much, if any, value to the undeveloped acreage”, said Mariani in a note to investors, adding Encana counts about 83 per cent of its acreage as developed.

The sale of Encana’s DJ Basin assets is subject to normal closing conditions, regulatory approvals and post-closing and other adjustments.

It reported that in the first half of 2015 the holdings in Colorado produced 52-million cubic feet of natural gas per day and 14,800 barrels of crude oil.

“Overall we view today’s divestiture as being positive”.

As part of the agreement, expected to close in the fourth quarter of this year, a newly formed entity of Broe and CPPIB will oversee the assets as a standalone business. After months-long back-and-forth, Encana and Erie reached a new agreement in August that involved the placement of noise limits and implementation of monthly leak inspections.

With the sale, Encana will have generated cash proceeds of $2.7 billion through divestitures and reduced net debt by $3 billion.

Canada Pension Plan Investment Board said the acquisition offers attractive economics and aligns with its energy- sector strategy.

“The company is … relying on significant asset sale proceeds to fund cash flow and its $225 million dividend”, he said.