Encana announces strategic combination with Newfield Exploration Company

Encana and Newfield have announced that they have entered into a definitive agreement whereby Encana will acquire all of the outstanding shares of common stock of Newfield in an all-stock transaction valued at approximately $5.5 billion. In addition, Encana will assume $2.2 billion of Newfield net debt. The strategic combination will create a leading multi-basin company and has been unanimously approved by the boards of directors of both companies. Subject to receipt of regulatory and shareholder approvals by both companies, the transaction is expected to close in Q1 2019.

Strategic Rationale: shareholder returns, immediately accretive, asset quality and synergies

• Creates a leading multi-basin company with large, premium positions in three of North America’s highest-quality, oil and liquids weighted plays; the Permian, STACK/SCOOP and Montney.
• Intends to raise dividend by 25% and expand share buyback program to $1.5 billion following closing of the transaction; funded with expected non-GAAP free cash flow and cash on hand.
• Immediately accretive to key elements of Encana’s five-year plan, including non-GAAP cash flow per share.
• Immediate scale and value creation; oil and condensate production up by over 54% and proved reserves up by around 85%.
• Adds a significant premium position in the core of the world-class, oil-rich, STACK/SCOOP in the Anadarko Basin.
• Creates North America’s second largest producer of unconventional resources; pro-forma Q3 2018 production of 577,000 BOED, including liquids production of around 300,000 BPD.
• Enhances already strong balance sheet; 2019 non-GAAP net debt to adjusted EBITDA expected to be about 1.5x.
• $250 million of expected annual synergies through greater scale, cube development and overhead savings.

“This strategic combination advances our strategy and is immediately accretive to our five-year plan,” Doug Suttles, Encana President & CEO, said. “Our track record of consistent execution gives us confidence to accelerate and increase shareholder returns. I am very excited to lead the combined company and want to congratulate the team at Newfield on doing a tremendous job building premium positions in the core-of-the-core in each of their assets, particularly in the world-class, oil-rich, STACK/SCOOP. When combined with our cube development model, expected synergies and relentless focus on efficiency, we are positioned to deliver highly efficient growth and quality returns.”

“This transaction is the best path forward for our company,” Lee K. Boothby, Newfield Chairman, President and CEO, said. “The combination of the two companies provides our investors with the very attributes that should be differentiated in today’s energy sector—operational scale, proven execution in development of large, liquids-rich onshore resource plays, a peer-leading cost structure and an exceptionally strong balance sheet.”

“We strongly believe that the synergies between these two organizations will create a dominant diversified resource player that is positioned to drive future value,” Mr Boothby said. “The new organization will be capable of efficiently developing high-value growth assets while delivering significant cash to shareholders. Throughout our 30-year history, Newfield has worked to create a strong portfolio of assets managed by some of the best and brightest people in the business. The merger will accelerate the development of these assets and as a result, capture full value for our owners.”

Encana: A leading multi-basin company with premium positions in three top North American plays

This transaction includes approximately 360,000 net acres in the core-of-the-core of the world-class STACK/SCOOP in the Anadarko Basin. This premium, oil-weighted, stacked-pay asset contains multiple commercial and prospective zones which Encana believes are perfectly suited to its proven cube development model. This asset contains over 6,000 gross risked well locations and about 3 billion BOE of net unrisked resource.

“Consistent with our focus on being in the best parts of North America’s best plays, our multi-basin portfolio will include large, premium, liquids-weighted positions in three of North America’s highest-quality, lowest-supply cost basins; the Permian, STACK/SCOOP and Montney,” Mr Suttles said. “Our multi-basin portfolio provides a powerful competitive advantage, helping us manage risk, provide optionality to direct capital to our highest margin opportunities and transfer learnings across the business.”

Encana: Increased liquids mix drives margin expansion and returns

Following the close of this transaction, Encana expects liquids production will contribute over 50% of total company production, driving continued margin expansion and returns. Combined pro-forma Q3 2018 production is around 577,000 BOED. This includes liquids production of approximately 300,000 BPD of which oil and condensate contributed 210,000 BPD. This production profile makes Encana North America’s second largest producer of unconventional resources.