ENCANA CORP. $18.66 (Toronto symbol ECA; Shares outstanding: 736.3 million; Market cap: $13.7 billion; TSINetwork Rating: Average; Dividend yield: 4.4%; 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.
However, Encana still plans to cut its heavy reliance on gas by increasing its production of higher-priced oil and natural gas liquids (NGLs), such as ethane, propane and butane.
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.
Encana is still a buy.
