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Wood Mackenzie: Encana unveils its boldest move yet with US$7.7 billion Newfield buy

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Oilfield Technology,

Roy Martin, senior analyst, corporate upstream, at Wood Mackenzie said: “Canadian producer Encana today unveiled its boldest move yet, buying US outfit Newfield Exploration for US$7.7 billion.

“Encana has a long track record of ambitious acquisitions, but the Newfield purchase tops its US$7.1 billion Permian purchase of Athlon Energy in 2014. It also makes Encana one of the top five unconventional producers in North America.”

He added: “Under its ‘Back to winning’ strategy spawned in 2013, Encana has been focused on re-engineering its portfolio with a weighting toward liquids. More than US$17 billion in acquisitions, in the Eagle Ford, Permian and now the Mid-Continent, have been matched with US$11 billion in non-core asset sales since launching this strategy.

“The results have been transformative,” he said.

Encana is acquiring one of the Anadarko Basin's top operators, Mr Martin added.

“We reckon this deal marks an opportunistic purchase for Encana. It will benefit from acquiring an undervalued company, even based on our conservative modelling view.

“Encana can also afford it. The transaction was sweetened by the unveiling of a 25% uplift in dividend and upsized share buyback programme to US$1.5 billion.

“There are significant benefits from becoming a larger North American player with multi-basin exposure. Against the backdrop of Permian headwinds such as takeaway capacity constraints, cost inflation and geological risks related to parent/child wells, the Mid-Continent complements the Eagle Ford as an attractive alternative investment option.”

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