Encana Corp. $69 - Toronto symbol ECA

ENCANA CORP. $69 (Toronto symbol ECA; Conservative Growth Portfolio, Resource sector; Shares outstanding: 749.5 million; Market cap: $51.7 billion; SI Rating: Average) is one of North America’s leading producers of natural gas (80% of production) and oil (20%). EnCana prefers to focus on unconventional properties such as early-stage gas developments and oil sands. These assets cost more to develop, at least initially, but should last much longer than conventional properties. EnCana is enjoying the benefits of its new partnership with U.S.-based ConocoPhillips to develop its oil sands assets. Daily production at its two main oil sands properties rose 33% in the third quarter of 2007. Oil sands accounted for roughly 20% of EnCana’s earnings of $1.27 a share (total $961 million) in the third quarter of 2007 (all amounts except share price and market cap in U.S. dollars). That’s down from $1.31 a share ($1.08 billion) a year earlier, mainly because the year-earlier quarter included a $255 million pre-tax gain on the sale of an asset. Revenue rose 40.0%, to $5.6 billion from $4.0 billion. In November 2007, EnCana paid $2.55 billion for the 50% of the Amoruso natural gas field in East Texas that it does not already own. EnCana also plans to spend $2.1 billion to develop the field. The purchase is a good fit with EnCana’s other properties in the region, and will increase its North American gas reserves by 10%. EnCana has also decided to develop the Deep Panuke offshore gas field south of Nova Scotia. This will cost it $550 million, and increase its daily gas production by 7% when production begins in 2010. The company should earn $5.19 U.S. a share in 2007, which implies a p/e of 13.1. It also trades at 6.1 times its cash flow of $11.26 U.S. a share. The current $0.80 U.S. dividend yields 1.2%. However, EnCana intends to double the dividend in 2008. EnCana is a buy.

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