Caerus finalizes Encana purchase

Larger company looks to ramp up its drilling activity in the Piceance

Caerus Oil and Gas LLC has completed its recently announced purchase of Encana’s local assets, and what’s now one of the largest producers in the Piceance Basin is already looking to escalate its local drilling activity following the acquisition.

“We expect to be a lot more active in the area. We hope to be. We’re really excited about this new acreage we’ve taken over,” Mike Rynearson, vice president of operations for Caerus, said at last week’s quarterly Northwest Oil and Gas Forum in Rifle.

He said Caerus already is looking at bringing in a second rig in September, adding to the one-rig drilling program it has been carrying out locally.  In an interview, he said it also is looking at further expanding drilling next year, something that will depend in part on natural gas prices.

Denver-based, privately owned Caerus first became involved in the Piceance Basin with its purchase of PDC Energy’s local holdings. It followed that up with acquisitions of the Piceance assets of Noble Energy, and later Marathon Oil.

But all of that pales in comparison to the $735 million Encana deal. Rynearson said he’s not sure how he could verify it, but he’s been told the 550,000 net lease acres Caerus bought from Encana makes Caerus the largest leaseholder in the state.  It expands on some 30,000 acres Caerus already owned. Rynearson said he wasn’t sure about the exact amount of acreage Caerus acquired because title verification work regarding lease acreage was part of a due-diligence process Caerus went through as part of the purchase.

Caerus also acquired more than 3,100 wells operated by Encana, to go along with about 880 that Caerus already operates locally.  Its local production now will amount to about 430 million cubic feet of gas per day, he said, and it will rank behind only Terra Energy Partners in terms of local well count and production.

“It’s a game-changer for us, for sure,” Rynearson said of the purchase.

“… It is an exciting moment. We’re trying to integrate everything (in combining the two companies’ local operations), get everything off to a good start and start ramping up activities. We’ve got some big plans for the future.”

He said Encana had 138 local staff, and Caerus was able to keep 118 of them. Rynearson said that many of the remaining 20 people preferred staying in the area to taking jobs with Encana elsewhere, so they received severance packages from Encana. 

Caerus now will have between 145 and 150 local employees, he said.

Encana hadn’t drilled locally for years, deciding it wanted to invest its resources instead in oil-rich areas elsewhere. Rynearson said that as a result, Encana’s local staff is excited about the sale to Caerus.

“They’ve got someone who’s focused on them. (With Encana), some of them felt certainly like they weren’t the main part of the company, being that Encana is so focused on oil,” he said.

Summit Midstream Partners LP shares the expectation that Caerus will get busy with the assets it has purchased from Encana.

Encana has been the oil and gas pipeline and processing company’s biggest customer, but its lack of local drilling was affecting Summit’s activity level locally.

Summit said in a quarterly earnings news release Thursday that it expects to become “significantly more active” in the Piceance Basin due to the sale to Caerus.

“We expect drilling levels to increase and volume growth to follow as a result” of the sale, Summit said.

Caerus has its hands full with its Piceance holdings, which it considers its core asset, Rynearson said.

Nevertheless, he said it’s always evaluating every acquisition opportunity locally to see how it fits with the company’s profile, and it tries to take the same approach in other basins as well.

Caerus has taken what it calls a contrarian approach within the industry.  While other companies have rushed toward more oil-based drilling in recent years due to low natural gas prices, Caerus has jumped on the opportunity to acquire gas-based assets at a discount, often also being able to take advantage of the infrastructure that already has been built by others, as in the case of Encana locally.

“They (Encana) built a lot of infrastructure. Coming into an area that has infrastructure gives us a little bit of leverage where we can use that in our economics to develop the area,” Rynearson said.

He said Caerus will be busy in the future reaching out to county commissioners across the region to apprise them of its plans after the Encana purchase.

It also will be looking to expand on the work it has done locally so far to sponsor events and otherwise be involved in community activities, something it also has engaged in through its participation in the West Slope Colorado Oil and Gas Association.

“We certainly want to find a way to help the communities,” he said.


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