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Apollo Global In Talks To Buy Alberta Gas Assets From Encana

|Includes: Apollo Global Management, LLC (APO), ECA

Private equity firm Apollo Global Management LLC is in talks to buy Encana's Bighorn properties in Alberta, Canada in a deal expected to be worth about $1.8 billion, the Wall Street Journal reported.

After years of weak prices for the fuel, Encana is selling off natural gas properties and adding more valuable oil and natural-gas liquids production to boost earnings.

Separately, Apollo also agreed to commit $700 million of capital in a partnership with oil and gas producer Zenergy LLC last week which will focus on oil assets in the Mid-Continent, Texas and the Arkansas-Louisiana-Texas regions.

In another transaction, Apollo agreed to provide $500 million to CSV Midstream Solutions Corporation in order to expand the natural gas and liquids provider's operations in the Western Canadian Sedimentary Basin.

Encana Corp has retained the RBC to assist in the sale of its Bighorn assets located in Alberta.

Assets overview

· Drilled approximately 21 net wells during 2013

· Acreage, as of 31-Dec-2013, of 391,000 net acres (252,000 net acres undeveloped)

· Average 2013 net production of 308.4 MMcfe/d (83% gas)

· 321 wells (315 gas and six oil) net producing wells, as of 31-Dec-2013

· Holds 70% interest in the Resthaven gas plant and 50% interest in the Kakwa gas plant with combined processing capacity of approximately 160 MMcf/d (100 MMcf/d net)

· Holds processing capacity of approximately 235 MMcf/d at the Musreau plant

Encana has been very active in 2014 with three major deals worth $5.43 billion, working towards raising its more profitable liquids profile while shedding gas assets. The deals include the $3.1 billion acquisition of Eagle Ford oil assets from Freeport-McMoRan and two deals involving sale of conventional gas assets in Wyoming for $1.8 billion and unconventional gas assets in East Texas for $530 million.

Encana's 2014 deals are consistent with its efforts to monetize gas assets by selling stakes in non-core assets or getting into joint ventures. The major deals since 2011 include a sale of 40% interest in Cutbank Ridge Partnership for $2.9 billion to Mitsubishi and a $2.2 billion JV with PetroChina for developing Duvernay oil and gas assets.

PE/financiers have been active buyers in the oil and gas space with cumulative deals worth $42.4 billion since 2011 comprising $32.7 billion in acquisitions and $9.7 billion in sales. The biggest deals in the PE/Financiers space are KKR-ITOCHU and others buying out Samson Investment for $7.2 billion and Kinder Morgan's sale of El Paso E&P assets to a consortium of Apollo Global, Riverstone Holdings and others for $7.15 billion.

Apollo Global has been a net buyer in the oil and gas space by participating in three deals worth $7.8 billion since 2009.

Derrick Petroleum estimates the value of Encana Bighorn asset package between $2 billion and $2.4 billion.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.