Encana Said to Work With RBC to Sell Bighorn Assets in Alberta

Feb 25, 2014 12:01 am ET

Feb. 25 (Bloomberg) -- Encana Corp., Canada’s largest natural gas producer, is working with Royal Bank of Canada to find a buyer for its Bighorn properties in Alberta, people with knowledge of the matter said.

The properties being sold produce the equivalent of about 61,500 barrels of oil a day, of which 79 percent is gas, said the people, who received marketing materials from RBC on the potential sale and asked not to be identified because the process is private. The Bighorn area includes the Kakwa, Resthaven and Red Rock properties near Grande Cache in west- central Alberta, according to Encana’s website. The area is on about 480,000 gross acres (194,250 hectares), the people said.

Encana is seeking to sell Bighorn after gas prices reached a five-year high of $6.40 per million British thermal units last week on the New York Mercantile Exchange, as winter storms brought snow and below-normal temperatures to the eastern U.S. Chief Executive Officer Doug Suttles has said he’s considering asset sales outside of five primary regions on which Encana is now focusing.

Suttles said on a conference call this month that the company is looking for operating efficiencies in the Bighorn area, where it has reduced spending since it’s “not a growth area at the moment.”

Jay Averill, a spokesman for Calgary-based Encana, declined to comment, as did Gillian McArdle, a spokeswoman for RBC Capital Markets.

Limited Marketing

“We are out testing the market on a few things today and if we like what we see we may sell some stuff and if we don’t, we won’t,” Suttles said in a Feb. 13 phone interview, declining to name which assets the company is trying to sell. “There seems to be investors with capital willing to invest.”

Bighorn may attract bids of C$2 billion ($1.8 billion) to C$2.5 billion if offers are generally in line with the roughly C$30,000 a flowing barrel that Canadian Natural Resources Ltd. agreed to spend on Devon Energy Corp.’s conventional assets in Canada last week, said Todd Kepler, an analyst at Cormark Securities Inc. in Calgary. Exxon Mobil Corp. may be “a natural” buyer after its purchase of Celtic Exploration Ltd. last year, he said.

“I don’t think the current gas environment is going to be enough to prompt potential buyers to have to pay up more than that,” Kepler said, noting gas futures are not as strong as spot prices. “There really aren’t a lot of other buyers out there, so that brings the average purchase metric down.”

Potential Value

Bighorn could be valued at as much as C$4 billion if the properties are marketed separately, Kepler said.

Scott Silvestri, a spokesman for Exxon, declined to comment when reached by phone.

Encana is limiting marketing of the Bighorn properties to potential buyers on an invite-only basis, according to one of the people familiar with the situation.

In 2012, Encana drilled 31 wells in the area, according to its website. The company has a 70 percent ownership stake in the Resthaven gas plant, which has the capacity to process 100 million cubic feet a day, where an expansion is under way. Its 2013 annual report is scheduled to be released in March.

--Editors: Steven Frank, Will Wade