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EnCana Agrees to Buy Rival Tom Brown for $2.2 Billion

The Canadian oil and gas explorer will gain fields in Wyoming and Colorado in the deal.

April 16, 2004|From Reuters and Times Staff Reports

CALGARY, Canada — EnCana Corp., North America's biggest oil and natural gas explorer, on Thursday agreed to buy smaller rival Tom Brown Inc. for $2.2 billion, in a deal that would boost EnCana's U.S. gas output by nearly 40% against a backdrop of high prices for the fuel.

The takeover sparked fresh interest in smaller oil and gas exploration and production firms, a stock sector that has performed well this year despite the broader market's struggles.

The $48-a-share cash deal for Denver-based Brown is EnCana's largest since it was created in the 2002 merger of Alberta Energy and PanCanadian Energy. The firm is based in Calgary.

The bid price was 24% above Brown's closing share price Wednesday. The stock jumped $8.95 to $47.72 on the New York Stock Exchange on Thursday.

EnCana's shares slipped 17 cents to $43.35 on the NYSE.

EnCana also announced plans to jettison up to $1.5 billion worth of its older western Canadian properties, taking advantage of a big appetite for assets among income trusts, which tend to pay top dollar.

The plum for cash-rich EnCana is Brown's gas fields in Colorado and Wyoming, where the Canadian company has spent the last few years building up a large position.

"In effect, this is a two-step action plan that is intended to advance our resource play strategy and enhance our portfolio of assets," EnCana Chief Executive Gwyn Morgan told analysts.

Natural gas prices are hovering just under $6 per million British thermal units, high value for the traditionally weak spring period, as the industry works to rebuild depleted inventories.

Morgan is bullish on prices, citing falling output from many tired North American fields.

Gas sold for less than $3 per million British thermal units for most of the 1990s. The surge in oil prices in recent years also has helped to support gas prices.

In buying Brown, EnCana will pick up 325 million cubic feet a day of gas output, lifting its U.S. production to about 1 billion cubic feet a day, or a third of its overall gas production.

Shares of other relatively small oil and gas firms jumped Thursday, adding to recent gains, as investors bet on more deals. A Standard & Poor's index of 14 such firms, including Brown, had been up 12.8% year to date through Wednesday. The index soared 6.3% on Thursday. By contrast, the blue-chip S&P 500 index is up 1.5% this year.

Among the stocks rising Thursday were Cabot Oil & Gas, up $1.67 to $34.22; Evergreen Resources, up $3.98 to $39.01; Patina Oil & Gas, up $1.56 to $29.60; Southwestern Energy, up $1.06 to $24.93; and Vintage Petroleum, up 60 cents to $15.22. All trade on the NYSE.

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