The assets include 54,200 net acres (21,900 hectares) of land and infrastructure in the Gordondale Montney region near Grande Prairie, Alberta, according to statements from the Calgary-based companies on Tuesday. Birchcliff will partially fund the purchase through a C$530 million stock offering and a C$18.75 million investment by Schulich, the company said. Schulich is the largest shareholder of Birchcliff, with a 28 percent stake as of a March filing, according to data compiled by Bloomberg.
The deal is sizable for Birchcliff, a company that dropped efforts to sell itself just over four years ago. The purchase price is equivalent to more than half of Birchcliff’s current market value of about C$1 billion and will allow the company to boost production to an estimated 65,000 equivalent barrels of oil a day, from about 42,000 in the first quarter. Birchcliff is buying the assets even as it contends with the lowest Canadian gas prices for the start of the year since 1996 and hasn’t hedged for the slump.
With the transfer of contracts to Birchcliff, Encana estimates it will reduce commitments to other companies tied to the processing and use of its gas by C$100 million. Encana has been selling assets to pay down debt and is seeking to continue reining in costs with U.S. crude still down almost 55 percent from its mid-2014 high. The company was in the midst of reorienting toward production of oil and liquids through a host of deals when the market collapsed, and it has continued to struggle with some pricier gas output than its peers.
National Bank of Canada and Cormark Securities Inc. advised Birchcliff on the deal, and are also co-leading the equity financing along with GMP Capital Inc. and Bank of Nova Scotia. Royal Bank of Canada advised Encana on the agreement.