ENCANA CORP. $18 - Toronto symbol ECA

ENCANA CORP. $18 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 740.1 million; Market cap: $13.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.6%; TSINetwork Rating: Average; www.encana.com) is cutting its reliance on natural gas, as rising shale gas production has cut prices from $11.50 U.S. per thousand cubic feet in 2008 to just $3.60 U.S. today.

Encana now plans to narrow its focus from around 30 properties to five: Montney (B.C.), Duvernay (Alberta), DJ Basin (Colorado), San Juan Basin (New Mexico) and Tuscaloosa Marine Shale (Louisiana).

These five fields also produce significant amounts of oil and natural gas liquids (NGLs), such as butane and propane, and should last decades. Encana expects oil and NGLs to supply 75% of its cash flow by 2017, up from about 35% today.

To free up cash for these developments, Encana has cut its quarterly dividend by 65.0%, to $0.07 a share from $0.20 (all amounts except share price and market cap in U.S. dollars). The shares now yield 1.6%.

In addition, Encana will transfer its Clearwater oil and gas properties in southern Alberta to a new company. Encana plans to sell shares in this new firm to the public in mid-2014, but it will retain a controlling interest.

Producing more oil and NGLs enhances Encana’s prospects. The Clearwater spinoff also unlocks value.

Encana is still a buy.

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