Canada's Encana Corp will buy Newfield Exploration Co for $5.5 billion, giving the natural gas producer greater access to North America's biggest oilfields.
Thursday's all-stock deal will give Encana more acreage in United States' Anadarko and Permian basins as well as Canada's Montney regions. This fits into its five-year plan to boost output by focusing on high-margin, liquids-rich production.
U.S. listed shares of Encana fell 15 percent, while Newfield rose 13 percent.
"This (deal) gives Encana a third growth area in the STACK/SCOOP. It also makes it more weighted obviously to the U.S. and U.S. oil," Eight Capital analyst Phil Skolnick wrote in a note.
The SCOOP/STACK region is a fast-growing shale oil play in the Anadarko basin in Oklahoma and Texas that is attracting investment from oil producers expanding beyond Texas's giant Permian basin, which is getting costly.
"We have large contiguous positions in three of the best plays in North America… Southwest Kingfisher County feels like the place that is ripe for development today," Chief Executive Officer Doug Suttles said in a conference call, referring to the STACK region.
Encana's offer comes against the backdrop of increased deal-making in the U.S. shale industry.
Chesapeake Energy inked a $4 billion deal to buy Texas oil producer WildHorse Resource Development Corp on Tuesday. Earlier this year, Concho Resources offered to buy rival RSP Permian Inc in an $8 billion deal.
Encana said liquids production will make for more than half of the combined company's total output and help expand margins.
Under the deal terms, Encana will buy Newfield for about $27.36 per share, a 35 percent premium based on Newfield's Wednesday close.
Newfield shareholders will receive 2.6719 Encana common shares for each share of Newfield common stock.
Separately, the Calgary, Alberta-based company, which reported third-quarter results on Thursday, said total production rose 33 percent to 378,200 barrels of oil equivalent per day (BOE/d).
Oil and oil equivalent production rose 40 percent to 178,700 barrels per day.
(Reuters, Reporting by Nishara Karuvalli Pathikkal and Nivedita Bhattacharjee)
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