This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Freeport-McMoRan Sells Eagle Ford Assets to Encana for $3.1B

Stocks in this article: FCX ECA

HOUSTON (The Deal) --  Freeport-McMoRan Copper & Gold (FCX) said Wednesday it agreed to sell its Eagle Ford Shale assets in South Texas to Canada's Encana (ECA) for $3.1 billion to help pay down debt and focus on prospects in the Gulf of Mexico.

Encana will get Freeport-McMoRan's working interests in 45,500 net acres predominantly in Karnes County along with some in Wilson and Atacosa for around $14,000 to $15,000 per acre, which is net of 53,000 barrels of oil equivalent per day of production as of the first quarter. The production is 75% oil, 11% natural gas liquids and 14% natural gas.

The deal includes 355 gross producing wells along with an inventory of 400-plus gross future wells.

Encana called the acquisition a "bold strategic move" that will double its oil production and enhance its continuing efforts to reposition to a more balanced commodity portfolio and boost shareholder value.

"Gaining a position in a world class, oil-rich resource play like the Eagle Ford accelerates the transition of our portfolio and underscores our investment focus on high margin assets," Encana CEO and president Doug Suttles said in a statement. "With this transaction, combined with our announced divestments of Jonah and properties in East Texas, we're replacing natural gas production with high margin oil and liquids production."

Phoenix's Freeport-McMoRan expects net proceeds of $2.5 billion, half of which will be used to pay off debt and the other half to fund further investments in the deepwater Gulf of Mexico.

"The transaction is part of our plan to monetize approximately $4 billion in energy assets to provide meaningful proceeds for debt repayment while enabling us to refocus our asset base and capital allocation on our strategic growth areas in the Gulf of Mexico, which we believe provide industry leading margins, high impact long-term growth opportunities and superior investment returns," CEO Jim Flores said in a statement.

Freeport-McMoRan said it doesn't expect to book a gain or loss on the transaction.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. said the move is positive for Encana at first blush as it's accretive -- by an estimated C$1 ($0.92) per share -- at a favorable valuation: 2.4 times first quarter 2014 cash flow annualized.

Global Hunter Securities Inc. analyst Sameer Uplenchwar wrote in a note that the company is paying around $58,500 per flowing barrel of oil equivalent versus Encana trading at around $45,000 per flowing barrel while selling low margin gas assets in the Jonah and East Texas areas for $30,000 to $35,000 per flowing barrel.

However, Uplenchwar said the deal is attractive on a cash flow basis with Encana paying less than 3 times operating cash flow versus the company trading around 7 times. "We see this acquisition as an opportunity for the company to apply its natural gas drilling factory mindset to an oil play while improving the overall profile of the company," he wrote.

Encana expects to pay for the properties with cash and proceeds from previously announced transactions when the deal closes in the second quarter. Encana said the transaction has to clear regulators.

Since announcing its strategic review in November, Encana has sold around $3.1 billion worth of assets, including Jonah (for $1.8 billion), East Texas ($530 million) and PraireSky ($800 million). Analysts expect additional non-core sales as the year progresses.

Uplenchwar said Encana had $2.6 billion of cash on hand at the end of last year and is well positioned to fund the acquisition without tapping the capital markets.

Encana plans to ramp up to four rigs in the Eagle Ford by year-end while maintaining its capital plan to focus on its other five core growth plays.

Barclays' Greg Pipkin and Chris Watson advised Freeport-McMoRan. Scotia Waterous' Doug Reynolds assisted Encana.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs