Encana to buy Athlon for $6 billion

Encana Corp. (NYSE: ECA) (TSX: ECA) said Monday that it reached a deal to buy Athlon Energy Inc. (NYSE: ATHL) for a cash tender offer of nearly $6 billion.

Calgary, Alberta,-based Encana, which drills oil and natural-gas wells in Weld County, will buy the outstanding shares of common stock of Texas-based Athlon for $5.93 billion. Encana also will assume Athlon’s $1.5 billion in senior notes for a total deal value of $7.1 billion.

“This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America’s top oil plays,” Encana CEO Doug Suttles said in a statement.

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The acquisition follows the sale announced Friday of Encana’s 54 percent stake in PrairieSky Royalty Ltd. (TSX: PSK) for $2.6 billion.

Encana spokesman Doug Hock said the acquisition would not affect the company’s Colorado operations. Encana will gain 140,000 net acres in the oil-rich Permian Basin in Texas through the acquisition, furthering its strategy to shift from producing gas to developing more oil.

Encana said the deal would add production of about 30,000 barrels of oil equivalent. Encana sees the potential for approximately 5,000 horizontal well locations with potential recoverable resources of approximately 3 billion barrels of oil equivalent.

Next year, Encana aims to invest at least $1 billion in the Permian Basin and ramp up from three to at least seven horizontal rigs by the end of next year. The Permian will play an important part within Encana’s growth portfolio, contributing significantly to the company’s projected total liquids production of around 250,000 barrels per day by 2017.

Athlon had 1,121 vertical and 17 horizontal wells during the second quarter, according to Encana.

Encana has operations in the Denver-Julesburg Basin in Northern Colorado, where it planned to invest $300 million this year. The company has an office in Longmont and its U.S. headquarters is in Denver.

“The company we’re acquiring, they have good folks down in the Midland (Texas) area already,” Hock said. “It’s not likely we would be moving a lot of folks around.”

Athlon shares rose nearly 25 percent to $58.23. Encana shares rose almost 3 percent to $21.67 on the New York Stock Exchange and about 3 percent to C$24.20 on the Toronto Stock Exchange.

Athlon shareholders will receive $58.20 per share, a premium of 28 percent over the average trading price of Athlon stock for the past 20 days. The deal will commence in 10 business days and shareholders will have 20 business days to tender their shares.