Encana acquiring Athlon Energy: Permian's greatest shale deal to date, will there be more?
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It is clear that Encana is rapidly growing its US shale oil portfolio, recently aiming for the big plays. The company acquired over 45,000 net acres in Eagle Ford’s core area in May 2014 and a few months later, it makes a second move by acquiring Athlon Energy, marking its entry in the Permian Basin. The latter scored a deal value of $7.1 billion for 140,000 net acres in Permian Midland. The acreage includes over 1,000 producing wells (operated and non-operated), of which only 17 are horizontal. Based only on the acreage acquired, it is estimated Encana paid $50,000/acre, the highest value per acreage in a North America shale deal to date.

Before the announcement of the deal, Rystad Energy estimated in its NASReport, Athlon’s acreage position in Permian Midland to have an NPV/acre above average at ~$52,000/acre*. The high value is due to the stack potential of the land and its location in the core counties of Permian Midland. The average NPV/acre among the companies with the largest NPV in Permian Midland is estimated to be $24,000/acre, which is high compared to other US shale plays. This is mainly due to the stacked potential of the area, but also the high liquid content, high initial production rates and relatively low well costs among most horizons in Permian Midland.
Athlon Energy is among the top20 acreage holders in Permian Midland, ranking 16th. The 140,000 acres net to Athlon are spread across nine counties, mainly located in Midland, Martin, Howard and Glasscock. Athlon has drilled most of its shale wells in these four counties.

When it comes to well results, Athlon’s best vertical wells have been drilled in Andrews, Martin and Howard counties. The average 30-day IP from these wells ranges 100-150 boe/d with 65-75% light oil content.  These well results are above the average compared with similar wells drilled by other operators in the same counties. For horizontal wells, the best results have been reported in Midland County with an average 30-day IP of ~1,200 boe/d and more than 70% oil content (only two wells). Similar results with 30-day IPs above 1,000 boe/d have been reported by other operators in nearby similar wells.

Athlon’s acreage is located nearby areas with proven successful horizontal wells drilled by other operators e.g. PXD, CXO and LPI. The horizontal potential of Athlon’s acreage represents the highest value for Encana. Consequently, Encana plans to increase the number of horizontal rigs in the area from three (at the time of acquisition) to seven by the end of 2015. Athlon was running seven vertical rigs at the time of acquisition and it is expected Encana will keep a similar number.  Since 2010, Athlon has considerably improved the well curve of its vertical wells with increased 30-day IP rates and lower decline. Improvements have been observed particularly in Howard and Martin counties.
In light of the significant upside potential in Permian and the increased activity in the various plays, it is expected similar deals will take place in the short to mid-term. Operators holding similar acreage positions as Athlon will make the best candidates for acquisition e.g. Parsley Energy.

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy advisory and research products for E&P and oil service companies, investors and governments. We are headquartered in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), for Africa as well as South East Asia.