The Encana Corporation, one of Canada’s biggest producers of natural gas and oil, agreed on Monday to buy Athlon Energy Inc. for $5.9 billion in a move to gain a foothold in one of North America’s most oil-rich regions.
By acquiring Athlon – Encana‘s biggest deal since its creation in 2002 – the Canadian driller will add 140,000 net acres in the Permian basin in West Texas and part of New Mexico.
Behind the deal is an effort by Encana to continue moving away from natural gas, which has been plagued by stubbornly low prices, and into more lucrative oil production.
The deal is expected to add about 30,000 barrels of oil equivalent a day to Encana’s production capabilities. The company added that it expected the Permian basin to become an important part of its growth strategy.
“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,” Doug Suttles, Encana’s chief executive, said in a statement. “The Athlon team has built an exceptional asset with massive running room that includes greater than 10 years of drilling inventory with up to 11 potential productive horizons of high-margin liquids.”
Under the terms of Monday’s deal, Encana will pay $58.50 a share, 25 percent above Athlon’s closing price on Friday. The Canadian company will also assume Athlon’s $1.5 billion in debt.
Athlon’s biggest investor is the private equity giant Apollo Global Management, which formed a partnership with the energy company four years ago and still retains a stake of roughly 25 percent.
Encana was advised by Tudor, Pickering, Holt & Company; Barclays; and the law firms Paul, Weiss, Rifkind, Wharton & Garrison; Vinson & Elkins; and Blake, Cassels & Graydon.
Athlon was advised by Evercore Partners, Goldman Sachs and the law firm Latham & Watkins.