Encana and Cenovus adopt different strategies in face of lower energy prices

Encana took its present form on December 1, 2009, after the old EnCana Corp. split itself into two new companies: the new Encana, which focuses on natural gas, and Cenovus Energy, which specializes in oil sands. Lower gas prices have pushed Encana’s shares down by about 36% since the split. Oil prices have weakened lately, but Cenovus’s stock is still up about 12%. Here is our latest report on these two energy stocks. ENCANA CORP. (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its proven reserves should last over 11 years. In the three months ended December 31, 2012, Encana’s cash flow per share fell 17.3%, to $1.10 from $1.33 a year earlier (all amounts except share price and market cap in U.S. dollars). Natural gas accounts for 95% of Encana’s production. In response to lower gas prices, the company cut its output by 14.8% during the quarter, to 2.9 billion cubic feet per day from 3.5 billion; this was the main reason for the lower cash flow. Partly due to colder winter weather, the price of natural gas has nearly than doubled in the past year, from around $2.00 U.S. per thousand cubic feet to today’s price of $3.90. The company plans to spend between $3.0 billion and $3.2 billion on capital projects in 2013. About 80% of this will go toward its oil and NGL businesses. Encana’s goal is to increase its oil and NGL production to between 50,000 and 60,000 barrels per day in 2013, up from 31,000 barrels in 2012. Oil and NGLs accounted for 6% of Encana’s overall production in 2012. [ofie_ad] CENOVUS ENERGY (Toronto symbol CVE; www.cenovus.com) has three heavy oil projects in Alberta and one in Saskatchewan. The oil sands supply about half of its output. The other half is conventional oil and gas. U.S.-based ConocoPhillips (New York symbol COP) owns 50% of Cenovus’s main Foster Creek and Christina Lake oil sands projects. Cenovus ships the heavy bitumen from these assets to refineries in Illinois and Texas, which are also 50% owned by ConocoPhillips. In the quarter ended December 31, 2012, cash flow per share fell 17.8%, to $0.92 from $1.12 a year earlier. Expansion pushed up oil output by 23.1%, to 177,646 barrels a day from 144,273, but that was offset by lower prices. In the latest issue of Canadian Wealth Advisor, we assess Encana’s plan to cut its heavy reliance on gas by increasing its production of higher-priced sources of energy. We also look at the long-term production outlook for Cenovus. We conclude with our clear buy-hold-sell advice on both of these stocks. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Some commentators are claiming that the American government’s drive for self-sufficiency in energy, which one report predicts it could achieve by 2035, will have dire consequences for Canadian oil and gas producers. Others believe Canada will continue to be welcomed as an essential, and safe, supply of energy to the U.S. What do you think?