What Randy Ollenberger BMO have to say Encana Sells Bighorn for US$1.8 Billion to Ju
piter
Resources
Encana announced it successfully reached an agreement to sell its 360,000 net acre deep basin Bighorn asset to Jupiter Resources
for US$1.8 Billion. JupiterResources is a private Alberta oil and gas company founded by Apollo Global Management. The Bighorn was ascribed 1.1Tcfe of net proved reserves at the end of 2013, and produced 53,100 boe/d (77% gas) in Q1/14. Transaction metrics imply $5,000/acre, $1.64/Mcfe of proved reserves and $34,000/boe/d of production. Based on our blow-down Bighorn cash flow estimates
,the consideration represents 5.8x 2014E cash flow and 8.8x 2015
E cash flow, a premium to Encana’s current P/CF of 5.4x in 2014
E and 6.1x in 2015E. The transaction is expected to close in
the third quarter of 2014, and Encana plans to update its 2014 guidance during its second- quarter announcement on July 24,
2014. Cash proceeds are expected to contribute to a total cash balance of $4.6 billion by year end. Our View:
We believe the market will react favourably to the Bighorn sale, although expect any price movement to be muted as the asset and
consideration were telegraphed in third -party press well in advance of this release. Consideration of US$1.8 billionis on the lower end of our SOTP valuation of $1.9- 2.5 billion; however, the value received is well above our Bighorn unrisked NPV of $1.3 billion which assumed no future drilling.