EnCana Corp. $61 – New York symbol ECA

ENCANA CORP. $61 (New York symbol ECA; Conservative Growth Portfolio, Resource sector; Shares outstanding: 749.5 million; Market cap: $45.7 billion; WSSF Rating: Average) is a leading North American producer of natural gas (80% of production) and oil (20%). The company 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 recently paid $2.6 billion for the 50% of the Amoruso natural gas field in East Texas that it does not already own. It also plans to spend $2.1 billion to develop the field. The purchase is a good fit with En- Cana’s other properties in the region, and will increase its North American gas reserves by 10%. The company earned $961 million in the three months ended September 30, 2007, down 11.0% from $1.08 billion a year earlier. That’s mainly because the year-earlier quarter included a $255 million pre-tax gain on the sale of an asset. Due to share repurchases, per-share earnings fell just 3.1%, to $1.27 from $1.31. However, EnCana is starting to realize the benefits of its partnership with ConocoPhillips to develop its oil sands assets in Alberta. Daily production at its two main oil sands properties rose 33% in the third quarter of 2007. Thanks to higher production and rising energy prices, EnCana’s third-quarter cash flow per share rose 27.4%, to $2.93 from $2.30. Revenue grew 40.0%, to $5.6 billion from $4.0 billion. EnCana now plans to develop the Deep Panuke offshore gas field south of Nova Scotia. This will cost the company $550 million, and increase its daily gas production by 8% when production begins in 2010. EnCana should earn $4.80 a share in 2008, which implies a p/e of 12.7. It also trades at 6.1 times its cash flow of $10.05 a share. The $0.80 dividend yields 1.3%. However, EnCana plans to double the payout in 2008. EnCana is a buy.

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