Shale producer EOG boosts Utica footprint with $5.6 billion Encino deal

Audio By Carbonatix

Enlarge

By Mrinalika Roy

(Reuters) -EOG Resources said on Friday it would acquire U.S. oil and gas firm Encino Acquisition Partners for $5.6 billion, including debt, to bolster its Utica shale position.

The Utica and Marcellus region is one of the world’s most prolific and vital natural gas production areas, with output topping 35 billion cubic feet per day and decades of reserves yet to be tapped, attracting the interest of several producers.

Encino Acquisition, majority-owned by Canada Pension Plan Investment Board, operates in the Utica shale basin of Ohio and is one of the largest privately-owned oil and gas exploration and production companies in the U.S.

“Encino acreage fits hand in glove with our existing Utica acreage and enhances our size, scale and returns in the play,” CEO Ezra Yacob said on a conference call.

The deal will give EOG access to additional 675,000 net core acres and more than 1 billion barrels of undeveloped net resource.

It marks the culmination of a methodical, multi-year strategy by EOG to build a high-quality, low-cost position in the basin through a combination of organic leasing, bolt-on acquisitions, and the latest large-scale deal, company executives said.

“Looks like a beneficial move for EOG after nearly a decade without any major acquisition,” said Andrew Dittmar, principal analyst at Enverus, noting it offered a lower-cost entry into undeveloped areas compared to the Permian.

While peers pursued major acquisitions, EOG focused on organic growth – a risky strategy considering high-quality undrilled inventory became scarce amid industry consolidation, Dittmar added.

Encino has secured more than 800 million cubic feet per day of firm natural gas transportation capacity, with about 70% reaching premium markets through pipelines such as Texas Eastern and Tennessee Gas. Their footprint spans Gulf Coast, Southeast, Northeast and Midcontinent markets, positioning EOG well to tap into rising demand.

“We see a very robust environment for North American gas demand and continued strong medium- and long-term demand for oil,” Yacob said.

EOG expects to fund the acquisition, likely to close in the second half of this year, through $3.5 billion of debt and $2.1 billion of cash on hand.

Shares of the company, which also announced a 5% increase in regular dividend, were down about 1%.

(Reporting by Mrinalika Roy in Bengaluru; Editing by Shilpi Majumdar and Tasim Zahid)