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CALGARY/TORONTO (Reuters) - Canada's Encana Corp said on Monday it will buy Athlon Energy Inc for $5.93 billion in cash, taking aim at Athlon's oil-rich lands in Texas's Permian Basin and at jump-starting its plan to boost output of lucrative oil and natural-gas liquids.
Encana, Canada's largest natural-gas producer, is offering $58.50 per Athlon share, a 25 percent premium on the stock's Friday closing price. The deal would give the Calgary-based company control of about 140,000 acres in the oil-rich Permian Basin, where Encana says it can raise liquids output by two thirds, to 50,000 barrels per day, by 2015.
With the purchase, Encana adds another core region to the six shale fields in Canada and the United States in which it concentrates its spending. The acquisition also speeds Encana's transformation from a gas-heavy company to a major oil producer, a process started last year by Chief Executive Doug Suttles.
"We like the deal," said Robert Taylor, senior vice-president at Canoe Financial, which holds about 3.17 million Encana shares, according to Thomson Reuters data. "Strategically it's exactly what the company said it would do ... (The price) is a little bit rich relative to what a lot of people would have expected but it's a high-quality asset."
Encana shares were up 2.3 percent at C$24.13 ($21.62) late on Monday morning on the Toronto Stock Exchange, while Athlon's rose 11 percent to $58.21 in New York.
The takeover will lead to a huge payday for Apollo Global Management. Athlon was formed in 2010 with the backing of the U.S. private equity firm, which still owns more than 30 percent of the company's stock, according to Thomson Reuters data.
The offer price for Fort Worth, Texas-based Athlon is a nearly threefold increase on the price at which the company went public.
Athlon has been focused on the acquisition and development of unconventional oil and liquids-rich natural gas reserves in the Permian Basin, which spans portions of Texas and New Mexico. Athlon's assets are located mainly in the northern part of the formation's Midland Basin.
Athlon currently produces about 30,000 barrels of oil equivalent per day and Encana says that can be boosted to 50,000 bpd by 2015. The Canadian company now expects to achieve 75 percent of operating cash flow from liquids production in 2015, two years ahead of forecast.
"Acquiring Athlon not only accelerates our portfolio transition, but is strongly accretive to our cash flow per share growth target and our balance sheet remains strong," Suttles said on a conference call.
Along with adding new high-value production, Suttles said Encana also expects the acquisition to increase its cash flow per share by 20 percent through 2017, double its previous target.
The company sparked a flurry of speculation among analysts that it was eyeing a large takeover after it moved quickly early this month to sell its remaining stake in PrairieSky Royalty Ltd, a company it spun out to investors in May. Encana has raised more than C$4.2 billion ($3.8 billion) from that spinout alone this year.
The Athlon deal, which is expected to close before the end of 2014, is subject to regulatory approvals. Encana is assuming Athlon's $1.15 billion of debt.
Encana was advised by Tudor, Pickering, Holt & Co and Barclay's, while Evercore Group LLC and Goldman Sachs & Co acted for Athlon.
Editing by Jeffrey Hodgson; and Peter Galloway