Nexen Inc. (Toronto: NXY) plans to acquire EnCana Corp.'s (Toronto: ECA) British North Sea operations for US$2.1 billion. EnCana reports it also wants to dispose of its businesses in Ecuador and the Gulf of Mexico in 2005 and focus on North America. EnCana U.K.'s assets include a 43% interest in its Buzzard oil field, a 41% and 54% interest in the Scott and Telford oil fields, other satellite discoveries, and interests in exploration licenses covering nearly 300,000 hectares in the North Sea. EnCana's British operations had proved reserves of 129 million BOE at the end of 2003 and 23,200 bbl. of oil output a day this year. The Gulf of Mexico assets it will sell are its 25% interests in the Tahiti, Tonga, Sturgis and Jack discoveries; a 6.25% interest in the St. Malo discovery; and an average 40% interest in 224 exploration blocks covering 516,000 net acres. The Ecuador assets include interests in five Oriente Basin blocks with average production of 77,100 bbl. per day of oil and an estimated 162 million bbl. of proved reserves as of year-end 2003. The assets also include a 36.3% interest in the OCP pipeline. EnCana will use sale proceeds to reduce debt and buy back stock. The company's debt-to-capitalization target is 35%. The Ecuador and Gulf of Mexico divestitures are expected to occur in 2005. In addition, EnCana plans to sell mature noncore North American assets as it upgrades its portfolio each year. CEO Gwyn Morgan says, "Conventional North American production has entered into a classic period of increasing costs and accelerating decline rates. We expect that onshore North America's future will be dominated by unconventional tight gas and oil sands, which we classify as resource plays. Resource plays represent a paradigm shift-in other words, unconventional thinking. For example, in contrast to conventional reservoirs, typically resource play decline rates and costs decrease, and cumulative booked reserves increase over time." EnCana is currently the No. 1 producer of North American natural gas and low-cost in situ oil sands. The company has expanded aggressively into British Columbia, the U.S. Rockies and recently into Texas. After the North Sea and Ecuador divestments, 100% of EnCana's production will be North American, 80% gas and gas liquids.

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