Reminder that this was a $3.2b deal for Encana to buy 45,000 eagleford acres producing 53mboed average in Q1 from FCX.
This transaction looked like a great deal for Encana at first look, and it still looks good as I look more closely. This is highly contiguous acreage in the prime part of the oil window of the eagleford. The operating cash flow for the quarter was $327mm vs purchase price of $3,200mm. This valuation seems very cheap. It seems to me that you could just let the existing wells produce out, and still get a reasonable return on your $3.2b without drilling another well, even with steep decline curves.
What is the the undrilled acreage worth? Well past transactions have been as high as $25,000/ acre. You could argue that this acreage should be worth even more, given recent improvements to well results and downspacing prospects. They say using 50 acre spacing there are 355 producing wells, and 400 undrilled locations. In any event, this implies that 25,000 of the 45,000 are undrilled acres, so the value for the undrilled acres is $625mm at a minimum.
Even on that basis it looks like a fine transaction, but there is a strong likelyhood that the acres will eventually drilled at 20 acre spacing, implying that there are in fact about 1400 or so undrilled locations there, which would make this a terrific deal.
The only metric it doesn't look great on is 1P barrels. With 59mmboe of 1P barrels in the ground, implying $54 per 1P barrel. But clearly there should be a lot of additional recoverable barrels not counted in this metric.
Encana is a pretty big Canadian based company, but with lots of US operations. I've never followed them too closesly, but it always seemed to me that they were spread out into every play that had marginal economics. They're in lots of gas plays, but not THE only gas play that has top tier economics. They are in lots of oil plays, like the Tuskaloosa shale, the Duvernay (canada), the Motney (canada), the San Juan. None of these have really proved to have outstanding economics. This does look like a promissing turn for them.
This transaction looked like a great deal for Encana at first look, and it still looks good as I look more closely. This is highly contiguous acreage in the prime part of the oil window of the eagleford. The operating cash flow for the quarter was $327mm vs purchase price of $3,200mm. This valuation seems very cheap. It seems to me that you could just let the existing wells produce out, and still get a reasonable return on your $3.2b without drilling another well, even with steep decline curves.
What is the the undrilled acreage worth? Well past transactions have been as high as $25,000/ acre. You could argue that this acreage should be worth even more, given recent improvements to well results and downspacing prospects. They say using 50 acre spacing there are 355 producing wells, and 400 undrilled locations. In any event, this implies that 25,000 of the 45,000 are undrilled acres, so the value for the undrilled acres is $625mm at a minimum.
Even on that basis it looks like a fine transaction, but there is a strong likelyhood that the acres will eventually drilled at 20 acre spacing, implying that there are in fact about 1400 or so undrilled locations there, which would make this a terrific deal.
The only metric it doesn't look great on is 1P barrels. With 59mmboe of 1P barrels in the ground, implying $54 per 1P barrel. But clearly there should be a lot of additional recoverable barrels not counted in this metric.
Encana is a pretty big Canadian based company, but with lots of US operations. I've never followed them too closesly, but it always seemed to me that they were spread out into every play that had marginal economics. They're in lots of gas plays, but not THE only gas play that has top tier economics. They are in lots of oil plays, like the Tuskaloosa shale, the Duvernay (canada), the Motney (canada), the San Juan. None of these have really proved to have outstanding economics. This does look like a promissing turn for them.
No comments:
Post a Comment