EnCana Corp. agreed last week to sell nearly half a million acres of natural gas-weighted property in west-central Alberta to Bonavista Energy Trust for $632 million cash.
The 409,000 net acres to be sold to Bonavista are 80% weighted to gas and currently produce about 60 MMcfe/d after royalties, EnCana said. The properties are considered noncore. The transaction would raise Bonavista's current output by 22% and future production would be 60% weighted to natural gas.
The transaction includes properties known as the Hoadley trend, which covers an area west of Red Deer, AB, running from Caroline north to the Pigeon Lake area just south of Edmonton.
EnCana was planning to sell up to $1 billion of assets across North America this year. The Bonavista sale "is a substantial portion of that," said EnCana spokesman Alan Boras.
"This sale reflects our ongoing efforts to high-grade our portfolio of producing assets, and it represents a substantial portion of our 2009 divestiture target of between US$500 million and $1 billion," said EnCana CEO Randy Eresman. "We continue to look for other opportunities for divestitures and acquisitions to improve the long-term value creation capacity of our extensive North American unconventional resource portfolio."
The sale, with an effective date of April 1, 2009, is scheduled to close by Aug. 21, Bonavista said.
The acreage to be sold currently produces about 60 MMcfe/d net, which includes 53.2 MMcf/d of gas, 2,150 b/d of natural gas liquids and 380 b/d of light oil. Bonavista officials hope to increase production and recoverable reserves by more than 50%.
"I think we're at or near the bottom of the cycle" on gas prices," Bonavista CEO Keith MacPhail said. "This is about the only time we could purchase a quality asset like this at a price like this. Do we need high gas prices to make a good deal? No. Would higher gas prices make it a great deal? Yes."
The properties to be acquired are situated on resource-rich, contiguous land, Bonavista noted, "of which approximately 156,000 (136,000 net) acres are undeveloped...The area is characterized as one of the most prolific multi-zone areas in Western Canada with over 12 different producing horizons and significant exposure to the recently emerging resource plays occurring in the Glauconite, Rock Creek, Cardium, Viking and Notikewin formations.
"While there is extensive exploration and development potential in many zones within the area, the primary development program will initially consist of drilling horizontal wells within the Glauconite and Rock Creek formations utilizing multi-stage fracture techniques paralleling Bonavista's success in the area over the past year," Bonavista said.
The trust already has identified 165 horizontal drilling locations on the new acreage. Finding and development costs were estimated at about C$10/boe, with onstream costs of about C$10,000/boe a day. "Eighty-nine percent of the production is operated, resulting in attractive operating costs of C$6.40/boe," Bonavista noted.
According to the trust, the new assets would:
To finance the transaction Bonavista plans to use bank loans and raise about $300 million by issuing 23 million trust units at C$16.85/unit.
The trust was created when Bonavista Petroleum Ltd. was reorganized in July 2003. Current operations are focused within Alberta, Saskatchewan and northeastern British Columbia. Prior to the EnCana transaction, Bonavista estimated that output for 2009 would average 51,500-52,500 boe/d, 55% weighted to gas.
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