Encana steps up spending despite low natural gas prices

EnCana - Normally Pressured Lance (NPL) area in southwest Wyoming - image

ENCANA CORP. (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its reserves should last over 11 years. The company 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 (Toronto symbol CVE), which specializes in oil sands projects, oil refineries and conventional natural gas. As a separate company, Encana’s revenue fell 4.5% in 2011, to $8.5 billion from $8.9 billion in 2010 (all amounts except share price in U.S. dollars). That’s because new techniques, such as horizontal drilling, have unlocked large amounts of shale gas. This has boosted inventories and cut prices. Earnings fell 33.3%, to $0.54 a share (or a total of $398 million) from $0.81 (or $598 million). Cash flow per share fell 5.4%, to $5.66 from $5.98. [ofie_ad]

Energy stocks: B.C. terminal should open door to China and higher natural gas prices

Encana now aims to triple production of higher-priced oil and natural gas liquids (NGLs), such as ethane, propane and butane, by 2015. As a result, the company will spend an extra $600 million on its oil and NGL properties this year. It had originally planned to spend $2.9 billion on all of its capital projects in 2012. The new total of $3.5 billion is roughly equal to Encana’s projected 2012 cash flow. In 2013, Encana aims to spend $4 billion to $5 billion to develop its properties. That’s more than its likely cash flow of $2.5 billion to $3.5 billion. However, it plans to make up that difference by selling some of its less important properties. The company owns 30% of a proposed terminal in B.C. that will convert gas to a liquid. From there, tankers will ship the gas to Asia, where gas sells for as much as double North American prices. In the latest edition of The Successful Investor, we analyze the outlook for natural gas prices and examine whether Encana can increase production sufficiently to keep its cash flow and dividend high (it currently yields 4.0%). We conclude with our clear buy-sell-hold advice on the stock. (Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members With commodity investments, are you more likely to buy a stock based on the immediate outlook for the commodity itself, or the long-term strength and asset value of the company? Let us know what you think in the comments section below. Click here.

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