ENCANA CORP. $9.14 - Toronto symbol ECA

ENCANA CORP. $9.14 (Toronto symbol ECA; Con- servative Growth Portfolio, Resources sector; Shares outstanding: 845.7 million; Market cap: $7.7 billion; Price-to-sales ratio: 1.4; Dividend yield: 4.2%; TSINetwork Rating: Average; www.encana.com) raised $2.7 billion in 2015 by selling less important properties (all amounts except share price and market cap in U.S. dollars). These sales are part of the company’s plan to focus on four key projects: Montney (B.C.), Duvernay (Alberta) and Eagle Ford and Permian (both in Texas). These fields produce large amounts of oil and natural gas liquids, such as propane and butane, which cuts Encana’s reliance on natural gas. They’re also efficient, which helps the company cope with low oil and gas prices. Because of these asset sales, Encana’s production fell 15.4% in the three months ended September 30, 2015, to 398,300 barrels a day (65% gas and 35% oil and natural gas liquids) from 470,600 a year earlier. As well, its realized gas prices, which include the benefit of hedging contracts, fell 7.9%, while oil prices declined 45.3%. As a result, Encana lost $24 million, or $0.03 a share, in the latest quarter. A year earlier, it earned $281 million, or $0.38 a share. Cash flow per share dropped 59.6%, to $0.44 from $1.09, while revenue declined 42.6%, to $1.3 billion from $2.3 billion. Encana will use the proceeds from its asset sales to pay down its long-term debt of $7.8 billion (as of September 30, 2015), which is a high 137% of its currently depressed market cap. It ended the quarter with cash of $352 million. The company has decided to begin $150 million worth of work on its Permian property now instead of waiting until next year. As a result, it probably spent $2.2 billion on capital projects for all of 2015, compared to $2.5 billion in 2014. The stock trades at a low 3.0 times Encana’s projected 2016 cash flow of $1.75 a share. The $0.28 dividend still seems safe and yields 4.2%. Encana is a buy.

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