Encana* (ECA ) : $19.60
1) SNP to reimburse Devon for drilling costs incurred prior to closing and acreage acquisition costs incurred subsequent to the effective date of the agreement;
2) SNP to make a $900-million cash payment upon closing and $1.6 billion paid in the form of a drilling carry. The drilling carry will fund 70% of Devon’s capital requirements, which results in SNP paying 80% of the overall development costs during the carry period;
1) Based on the current work plan, Devon expects the entire $1.6 billion carry to be realized by year-end 2014;
2) Devon will serve as the operator and will have ultimate responsibility for the allocation of capital. The company is also responsible for commercially marketing all production from these plays into the North American market. Devon said it had tremendous interest during its data room process, and
ECA will experience the same level of interest. The acreage across the Tuscaloosa, the Utica/Collingwood, the Eaglebine and the Mississippi Lime was quoted in the press release to be ~ 1.2 million net acres, which is larger than the ~900,000 net acres we were estimating in prior research.
Given ECA’s large acreage position, it can do a JV of similar size to the Devon/Sinopec deal. He updated the Devon/SNP JV implied value across the JV targeted acreage of ECA on a 100% basis.
ECA plans to host an investor day on June 21 to highlight its resource potential within its oil and liquids-rich plays.