Canada’s Encana said Tuesday its Encana Oil & Gas (USA) unit is selling for $850 million its Haynesville natural gas assets to a joint venture formed by GeoSouthern Haynesville and GSO Capital Partners-managed funds.
Through transfer of current and future obligations, Calgary-based Encana will reduce its gathering and midstream commitments by roughly $480 million on an undiscounted basis. Buyer and seller also have agreed to Encana transporting and marketing GeoSouthern’s Haynesville production on a fee-for-service basis for the next five years.
Encana said it will use the cash to reduce its net debt.
“This transaction delivers significant proceeds that we’ll use to strengthen our balance sheet,” said Doug Suttles, Encana CEO. “In addition, it eliminates our midstream commitments in the Haynesville and captures ongoing revenue upside through a gas marketing arrangement.”
Encana’s Haynesville natural gas assets include roughly 112,000 acres of leasehold, plus additional fee mineral lands, collectively representing Encana’s total position in northern Louisiana.
The company operates approximately 300 wells in the area. Estimated year-end 2014 proved reserves were 720 billion cubic feet equivalent (Bcfe) of natural gas.
“Our new joint venture with GSO, coupled with our history of successfully drilling and developing horizontal shale assets, gives us great confidence in our ability to enhance the value of these leases,” said Margaret Molleston, president of GeoSouthern.
The Encana divestment is consistent with the company’s philosophy to concentrate its capital in four areas: the Permian and Eagle Ford in the U.S., and the Duvernay and Montney in western Canada.
The sale of Encana’s Haynesville assets is expected to close in the fourth quarter with an effective date of January 1, 2015.
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