Encana forges shale energy giant with $5.5 billion deal for Newfield Exploration

After years of slimming down its oil and gas holdings, Canada’s Encana Corp. is reversing course with a US$5.5 billion acquisition of a U.S. shale producer in what will be the company’s biggest-ever deal.

Encana agreed to purchase Newfield Exploration Inc., which will give it positions in the Stack and Scoop shale fields in Oklahoma, the Bakken region of North Dakota and the Uinta play in Utah. The all-stock deal also will create North America’s second-largest shale explorer, the companies said in a statement on Thursday. Encana’s stock plunged.

The acquisition signals a sea-change for North American oil producers that spent the last few years building so-called pure-play drillers focused on a single shale region such as the Permian Basin on West Texas and New Mexico. For its part, Encana had spent years whittling its holdings to a core group of fields: the Permian, Eagle Ford, Montney and Duvernay.

Since its 2009 spinoff of oil producer Cenovus Energy Inc., Encana has sought to reduce its reliance on gas, and the Newfield acquisition represents the biggest step so far in that direction.

The transaction will enhance Encana’s opportunities for growth outside western Canada, where pipeline constraints have pressured crude prices. Encana pledged significant investor benefits from the deal, including a 25 percent dividend increase and an expansion of buybacks.

Newfield soared as much as 19 percent in pre-market trading in New York. Encana shares fell as much as 16 percent to $11.24 in early trading in Toronto.

Encana joins BP Plc, Concho Resources Inc. and Chesapeake Energy Corp. in acquiring assets or entire companies to expand after oil markets emerged from the deepest slump in a generation.