Energy producer Encana has agreed to pay $5.9 billion to buy Texas-based Athlon Energy, a deal that gives the Canada-based company a prime position in the largest crude oil producing region in the U.S.
Under the terms of the deal announced Monday, which both companies approved, Encana (ECA) agreed to pay $58.50 per share in an all-cash deal to buy Athlon (ATHL). The transaction value rises to about $7.1 billion when considering the debt Encana will assume with the purchase. The offer price represents a 25% premium over Athlon’s trading price at market close on Friday.
The acquisition gives Encana a strong position in the Permian Basin, which is located in Texas and New Mexico and is the nation’s most prolific oil producing area. In 2013, the Permian Basin accounted for 18% of total U.S. crude oil production, according to the U.S. Energy Information Administration.
“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,” said Encana Chief Executive Doug Suttles.
While new growth areas like North Dakota have gained a lot of media attention for their recent energy boom, the Permian Basin is also doing very well recently, bolstered by advanced technologies such as hydraulic fracturing. As the Wall Street Journal pointed out earlier this month, Permian oil output “shows no signs of stopping at its current 1.7 million barrels a day.”
Encana expects the deal will add current production of about 30,000 barrels of oil equivalent per day, and sees potential for about 5,000 horizontal wells that could recover about 3 billion barrels of oil equivalent. Next year, Encana intends to invest at least $1 billion in the region and add more horizontal rigs. Horizontal rigs are used to drill wells that produce oil from tight, low-permeability formations.