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Hot Stock of the Day: Athlon Energy (NYSE: ATHL) By mhughes

Shares of Athlon Energy Inc. (NYSE: ATHL) soared 25% to a 52-week high of $58.30 Monday morning after agreeing to be bought by Encana Corp. (NYSE: ECA) for $5.93 billion in cash. Encana, Canada's second-largest natural gas producer, is paying $58.50 a share for the Fort Worth, Texas-based independent oil exploration and production company. The post Hot Stock of the Day: Athlon Energy (NYSE: ATHL) appeared first on Money Morning - Only the News You Can Profit From .

Shares of Athlon Energy Inc. (NYSE: ATHL) soared 25% to a 52-week high of $58.30 Monday morning after Athlon agreed to be bought by Encana Corp. (NYSE: ECA) for $5.93 billion in cash.

Encana, Canada's second-largest natural gas producer, is paying $58.50 a share for the Fort Worth, Texas-based independent oil exploration and production company. That's a 25% premium to Athlon's closing price on Friday. Also included in the deal is the assumption of $1.5 billion in long-term debt, bringing the total deal value to $7.1 billion.

NYSE: ATHL
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Athlon shareholders applauded the deal, and Encana investors also appeared pleased. ECA shares jumped 3.3% intraday to $21.93.

Encana touts the deal as a radical move that shifts the company's structure and focus.

"This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America's top oil plays," said Encana Chief Executive Officer Doug Suttles in a statement. "The Athlon team has built an exceptional asset with massive running room that includes greater than 10 years of drilling inventory with up to 11 potential productive horizons of high-margin liquids."

Athlon, meanwhile, says the deal opens up new opportunities.

"With a commitment to excellence and an unwavering focus on results, the Athlon team has established a track record of acquiring high-quality assets, applying extensive technical expertise as a top-tier operator and creating tremendous value for our shareholders," Bob Reeves, Athlon's chairman, president, and CEO, said in a statement. "Through tireless dedication and hard work, our team has built a high rate-of-return oil manufacturing process in the heart of the world-class Midland Basin. With Encana's exceptional resources and the collective expertise of both teams, the next phase will accelerate development and ultimately realize the full potential of the deep inventory of premier projects."

Indeed, the move gives Athlon the muscle and means to expand.

And, it gives Encana a key position in the most lucrative U.S. oil-producing region by adding a top oil play to its portfolio. Here's exactly what Encana stands to gain from this deal...

The Athlon transaction adds some 140,000 oil acreage to Encana's holdings, with about 3 billion barrels of recoverable oil equivalent.

Athlon presently produces roughly 30,000 barrels of oil a day in Texas' Permian Basin. Encana will spend $1 billion on the basin next year, boosting production to 50,000 barrels daily.

Encana's lofty, yet doable, goal is for total liquids production of 250,000 a day by 2015.

The Permian Basin, located in West Texas and the adjoining area of southeastern New Mexico, spans some 250 miles in width and 300 miles in length. It is the largest oil-producing region in the United States. In 2013, oil output from the region surpassed output from the Gulf of Mexico, according to the Energy Information Administration.

Crude production in the basin jumped 60% to 1.35 million a day in 2013 from 2007 levels thanks to new technologies, including fracking and horizontal drilling. Such innovations have brought an abundance of oil to the United States, dramatically reducing the nation's dependence of foreign oil.

The Athlon acquisition is just part of Encana's recent and dramatic restructuring plan that includes reducing the company's core strategy away from a maturing natural gas business to a focus on oil and natural gas liquids.

Athlon Energy (NYSE: ATHL) Acquisition Is Encana's Biggest Deal to Date

In an attempt to increase earnings and profits amid several years of low natural gas prices, Encana has been busily rebalancing its portfolio.

Just last week, Encana sold its stake in Prairie Sky Royalty Ltd. (TSE: PSK) for about $2.3 billion, 30% higher than PSK's recent IPO price. Prairie Sky, spun off from Encana, became one of the largest royalty initial public offerings of the year when it debuted on May 29. Shares were priced at $28; the first trade was $34.99.

In June, Encana sold its Bighorn properties in Alberta to private equity firm Apollo Global Management for roughly $1.8 billion. Also in June, Encana bought oil-producing assets in the Eagle Ford Shale in Texas from Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) for $3.1 billion.

But the Athlon deal is Encana's largest since its creation in 2002.

Encana expects the deal, approved by the boards of both companies and expected to close by the end of 2014, to immediately strengthen its cash flow per share. Encana said it now anticipates achieving its target of earning 75% of its operating cash flow from liquids productions in 2014, two years ahead of original projections. Encana's prior forecast was for cash flow in 2014 to be at $3.4 billion to $3.6 billion.

"We're delivering on the portfolio promises we made for 2017, today," Suttles said. "We believe this acquisition, when combined with other recent portfolio changes, is highly accretive to our long-term cash flow per share projections and our goal of sustainably growing shareholder value. Our portfolio now aligns with our vision of being a leading North American resource play company. Our growth areas now include the top two resource plays in Canada, the Montney and Duvernay, and the top two resource plays in the United States, the Eagle Ford and the Permian."

ATHL shareholders who held on since its IPO a little more than a year ago have been handsomely rewarded. The company went public on Aug. 2, 2013, at $20 a share. At last check, Athlon shares were changing hands at $58.33.

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The post Hot Stock of the Day: Athlon Energy (NYSE: ATHL) appeared first on Money Morning - Only the News You Can Profit From.

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