EnCana Acquires Tom Brown, Inc.

EnCana will acquire all of the outstanding shares of independent energy company Tom Brown, Inc. of Denver, Colorado, for cash, at a price of US$48.00 per share. This represents a premium of 24 percent to yesterday's closing price of Tom Brown's common stock and results in total consideration, including debt, of US$2.7 billion.

"The completion of this acquisition of Tom Brown's long-life natural gas reserves and production, together with the high-growth potential of its undeveloped resources located in the key unconventional onshore U.S. gas basins, will further advance our North America resource play strategy. The U.S. Rockies have been EnCana's highest growth region and this acquisition is anticipated to take our U.S. gas production to 1 billion cubic feet per day," said Gwyn Morgan, EnCana's President & Chief Executive Officer.

Enhancing EnCana's U.S. growth potential

"Tom Brown's assets are a hand-in-glove fit with our U.S. Rockies asset base. These are high working interest, low-decline, early-life, operated properties where we believe we can apply our proven resource play management system to grow production, reserves and financial returns as we maximize the assets' potential. We expect this acquisition to be immediately accretive to both cash flow and earnings per share. We also plan to undertake a significant increase in the size of our current divestiture program of conventional non-core properties in Western Canada - assets that are attractive to the royalty trust market. To date in 2004, we have divested of about US$380 million of non-core assets. The additional divestitures are expected to realize between US$1 billion and US$1.5 billion from the sale of conventional properties that currently produce between 40,000 and 60,000 barrels of oil equivalent per day. Pro forma the Tom Brown acquisition and the planned Canadian conventional divestitures, EnCana's 2004 U.S. production is expected to increase from 18 to 24 percent of total production. Long-life, low-decline resource plays are expected to rise to about 75 percent of our North American production, from 67 percent currently. Overall, North American production is expected to be 88 percent of EnCana's total production," said Randy Eresman, EnCana's Chief Operating Officer.

Tom Brown's long-life assets expected to build EnCana's net asset value

"EnCana has been built upon long-life, low production cost, high-quality assets that have enabled us to forecast 10 percent per share average annual growth from existing assets, without the need to acquire. However, we have also maintained a strong balance sheet, which places us in an advantageous position to build the net asset value of our total portfolio by adding similar, high-quality assets such as Tom Brown," Morgan said.

Resource play assets are characterized by a large known resource in place with significant development potential that is unlocked through the disciplined application of technology and continuous operational and cost improvement. Production from these long-life properties declines at a lower rate than from conventional reservoirs. Tom Brown has accumulated an attractive suite of resource play properties that are an excellent strategic fit with EnCana's U.S. operations.

"Over the past four years, our U.S. Rockies team has demonstrated success at applying our resource play strategy to build value for our shareholders. A prime example is our acquisition of Ballard Petroleum in Colorado in early 2001, which gave us an entry into Mamm Creek. Since the acquisition we have increased net proved reserves by seven-fold to approximately 1 trillion cubic feet of gas and production by ten-fold to 210 million cubic feet of gas equivalent per day. This has all been accomplished at an attractive full-cycle finding, development and acquisition cost of US$1.45 per thousand cubic feet equivalent. Our compound annual growth rate in our U.S. region has been 75 percent, of which about three-quarters has been through the drill bit. We expect to continue this growth and value creation by developing the Tom Brown assets in Colorado, Wyoming and Texas," said Roger Biemans, President of EnCana Oil & Gas (USA) Inc.

The completion of EnCana's acquisition of Tom Brown is expected to add about 325 million cubic feet equivalent per day of current gas production, about 1.2 trillion cubic feet of proved gas reserves and about 2 million net undeveloped acres. Since 1998, Tom Brown has grown its production by 18 percent per year from the Piceance, Green River, Wind River, Paradox, East Texas, Permian and Western Canada Sedimentary basins. These are early-life properties where Tom Brown has identified an estimated 3,200 drilling locations - an exceptional inventory of development opportunities where EnCana believes it can apply its highly-efficient "gas manufacturing" techniques to grow production and reserves for several years ahead.

As previously announced by Tom Brown, Ryder Scott Company, independent petroleum consultants, reviewed the top value properties which make up over 80 percent of the reserve quantities on a net equivalent basis.

Tom Brown has hedged about half of its 2004 expected gas production and a lesser portion of its volumes through March of 2005. These hedges include production area fixed price swaps and a number of costless collars. To help protect the strong financial returns associated with this acquisition, the hedge positions will be increased on up to 100 percent of Tom Brown's forecasted production volumes through 2006. Based on the existing and planned hedges, it is anticipated that the Tom Brown acquisition will generate cash flow in excess of capital investment for several years.

This transaction is an example of the disciplined, rigorous approach that EnCana applies to all its capital investment decisions. Based on full-cycle economics, EnCana expects that the combination of this acquisition and the planned divestitures will achieve the company's targeted financial returns. Of the total acquisition price of US$2.7 billion, approximately US$358 million is related to the purchase of undeveloped exploration land, certain midstream assets and Tom Brown's Sauer Drilling Company. The cost per unit of current proved reserves is estimated at US$1.95 per thousand cubic feet. Full-cycle finding and development costs, including the acquisition cost and all future development costs, to exploit the expected recoverable reserves are anticipated to be about US$1.50 per thousand cubic feet, consistent with full-cycle costs at Mamm Creek. Tom Brown has a relatively low cost structure with lease operating expenses in 2003 of US$0.43 per thousand cubic feet. Based on EnCana's experience with its Mamm Creek and Jonah gas fields, unit operating costs are expected to decline as production volumes continue to increase.

EnCana has arranged a US$3 billion non-revolving bridge financing with Royal Bank of Canada to fund the acquisition. On a pro forma basis and after the planned acquisition and divestitures, EnCana estimates that its debt to total capitalization ratio as at December 31, 2003 would have been 40:60. EnCana anticipates that due to the structure of its U.S. holdings and existing Tom Brown and EnCana tax pools it will be able to shelter substantially all of its U.S. cash flow from income tax through 2005.

Under the terms of the agreement between EnCana and Tom Brown, a subsidiary of EnCana will commence a tender offer to purchase all of the outstanding shares of Tom Brown at a price of US$48.00 per share in cash. The boards of directors of both EnCana and Tom Brown have unanimously approved the transaction. The Tom Brown board of directors is recommending shareholders of Tom Brown accept the offer and the directors of Tom Brown and senior executive team have informed EnCana of their intention to tender their shares to the offer, which is expected to commence within the next 10 business days and is expected to close prior to June 1, 2004. A vote of Tom Brown's stockholders will be required only if less than 90 percent of Tom Brown's shares are tendered into the EnCana offer. Under certain circumstances, should EnCana not be successful in acquiring the minimum number of shares required under the tender offer, and Tom Brown is acquired by, or in certain instances enters into an agreement to be acquired by another party, EnCana will receive a cash payment of US$80 million from Tom Brown.

Following completion of the tender offer and receipt of any necessary Tom Brown stockholder approval, Tom Brown will merge with a subsidiary of EnCana and each share of Tom Brown common stock not tendered in the tender offer will be converted into the right to receive US$48.00 in cash. Upon completion of the merger, Tom Brown will become a wholly owned subsidiary of EnCana.

The closing of the tender offer and merger of the EnCana subsidiary and Tom Brown are subject to customary terms and conditions, including the tender of at least a majority of Tom Brown's outstanding shares of common stock on a fully diluted basis and customary regulatory approvals.