ENCANA CORP. $18 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 737.7 million; Market cap: $13.3 billion; Price-to-sales ratio: 2.3; Dividend yield: 4.6%; TSINetwork Rating: Average; www.encana.com) aims to cut its exposure to low natural gas prices by producing more oil and natural gas liquids (NGLs), like butane and propane.
In the three months ended June 30, 2013, Encana’s oil and NGL output rose 68.8%, to 47,600 barrels a day from 28,200 a year earlier. But that’s still just 9% of its overall production. Encana aims to raise its NGL and oil output to 70,000 to 75,000 barrels a day by the end of 2013.
In response to weak gas prices, the company continues to expand its hedging program. For the second half of 2013, it has hedged roughly 75% of its expected production at $4.37 U.S. per thousand cubic feet. That’s 22.8% higher than today’s price of $3.56 U.S. For 2014, Encana has hedged 55% of its forecast output at $4.19 U.S. per thousand cubic feet.
Encana’s long-term prospects are improving. New terminals to ship liquefied natural gas to Asia should help spur natural gas prices.
The company is also selling off less important properties and cutting costs. That will let it maintain its $0.80 U.S. dividend, which yields 4.6%. Moreover, the stock trades at a low 5.1 times Encana’s likely 2013 cash flow of $3.42 U.S. a share.
Encana is a buy.
