Encana to sell Colorado oil-gas assets for US$900 million to CPP-led group

CALGARY – A partnership led by the Canada Pension Plan Investment Board is snapping up Colorado oil and gas assets from Encana Corp. in the latest effort by the fund to grow its natural resources portfolio.

The US$900 million cash deal includes nearly 21,000 hectares in the Denver Julesburg Basin, which at one time was a core part of Encana’s portfolio.

The lands produce a combination of natural gas, crude oil and other liquids with reserves estimated at 96.8 million barrels of oil equivalent.

The CPP Investment Board, which manages funds for the Canada Pension Plan, would own 95 per cent of the DJ Basin assets and the Denver-based Broe Group would own five per cent.

Avik Dey, head of natural resources for CPPIB, said the fund was keen to invest in that region of Colorado. The link-up with the Broe Group, which has a 40-year track record in the area, made the deal even more attractive.

“Having that strong local presence attached to an asset that we covet was very compelling,” Dey said in an interview, adding the CPPIB is hoping more opportunities like its latest deal come to fruition.

As of March 31, CPPIB’s natural resources portfolio was valued at C$1.5 billion. Last month, it committed $1 billion for energy infrastructure acquisitions in Western Canada in partnership with Wolf Infrastructure Inc., a Calgary-based firm with expertise in the sector.

Calgary-based Encana has been selling off non-core assets in the face of persistently low oil and gas prices. The company’s strategy is to focus on four producing areas, two in Western Canada and two in Texas.

Encana says the sale of the Colorado assets would increase the total cash it has raised from various divestitures in 2015 to about US$2.7 billion, used largely to reduce the company’s debt.

“Our efforts to transform our portfolio, improve efficiency and grow margins are increasing returns and strengthening our balance sheet, positioning Encana for success throughout the commodity cycle,” CEO Doug Suttles said in a release. “The new entity is acquiring a quality asset along with a highly talented team.”

The workforce already on the ground was a big plus for the buyers, said Dey.

“One of the key reasons we’re excited about this transaction is we’re inheriting a world-class operating organization from Encana, so we’ll augment that with a management team that will be recruiting over the coming months.”

The Toronto-based CPPIB manages a fund that was worth about C$268.6 billion as of the end of June, on behalf of the Canada Pension Plan’s contributors and beneficiaries.

It’s not the only big pension fund to get involved in the oil and gas sector this year. In June, the Ontario Teachers Pension Plan agreed to buy Cenovus Energy Inc.’s (TSX:CVE) royalty lands for $3.3 billion.

Follow @LaurenKrugel on Twitter.