encana

Chesapeake Energy, $29.88, symbol CHK on New York, is a recommendation of our Stock Pickers Digest newsletter. It’s a buy. A: UGI Corp., $32.15, symbol UGI on New York (Shares outstanding: 110.5 million; Market cap: $3.6 billion; www.ugicorp.com), has five main divisions: Gas Utility (which accounted for 32% of UGI’s 2010 earnings), Midstream & Marketing (26%), International Propane (22% of 2010 earnings), AmeriGas Propane (17%), and Electric Utility (3%). UGI distributes natural gas and electricity to nearly 568,000 customers in eastern Pennsylvania; 44%-owned AmeriGas is the largest U.S. propane marketer, serving about 1.3 million users in 50 states....

ENCANA CORP. $29.53 (Toronto symbol ECA; Shares outstanding: 739.8 million; Market cap: $22.0 billion; TSINetwork Rating: Average; Dividend yield: 2.6%; www.encana.com) has cancelled a deal to form a 50/50 joint venture with PetroChina to operate its Cutbank Ridge natural-gas property on the B.C./Alberta border. Under the terms of the deal, PetroChina would have paid $5.4 billion for half of Encana’s Cutbank Ridge assets, and assumed half of the future development costs. However, the two sides were unable to agree on the final terms. Encana will now look for new partners to help it develop Cutbank Ridge and its other promising untapped gas deposits....

PLEASE NOTE: Our next Hotline will go out on Thursday, June 30, 2011. ROYAL BANK OF CANADA, $53.92, Toronto symbol RY, is selling its struggling U.S. retail-banking operations, which consist of 424 branches in six southeast states. The buyer, PNC Financial Services Group Inc. (New York symbol PNC), is also purchasing Royal’s U.S. credit-card operations. Royal will hang onto its U.S. wealth-management and brokerage businesses. PNC is paying $3.6 billion U.S. for these assets, with an option to pay up to $1 billion U.S. of the purchase price in PNC shares. That would give Royal a 3% stake in PNC....

ENCANA CORP. $32.15 (Toronto symbol ECA; Shares outstanding: 739.8 million; Market cap: $24.5 billion; TSINetwork Rating: Average; Dividend yield: 2.5%; www.encana.com) continues to use joint ventures to cut the cost of developing its unconventional natural-gas properties. Northwest Natural Gas Co. (New York symbol NWN) will invest $250 million U.S. over the next five years for an undisclosed stake in Encana’s Jonah field in Wyoming. The deal gives Northwest, which distributes gas to 674,000 customers in Oregon and Washington State, a portion of Jonah’s production at a set price....

iShares S&P/TSX Capped Energy Index Fund, $21.11, symbol XEG on Toronto (Shares outstanding: 50.5 million; Market cap: $1.1 billion; ca.ishares.com) aims to mirror the performance of the S&P/TSX Capped Energy Index, which is made up of the largest-capitalization energy stocks on the Toronto exchange. The weight of any one company is capped at 25% of the index’s market capitalization. The fund’s MER is 0.55%. It yields 1.4%. iShares S&P/TSX Capped Energy Index Fund’s top 10 holdings are Suncor Energy, 18.5%; Canadian Natural Resources, 13.5%; Cenovus Energy, 7.5%; Encana Corp., 6.8%; Talisman Energy, 6.4%; Canadian Oil Sands Trust, 4.4%; Nexen, 3.7%; Imperial Oil, 3.5%; Crescent Point Energy, 3.4%; and Penn West Energy Trust, 3.3%. We continue to think most investors are better off investing in individual companies as part of a well-balanced and diversified portfolio, rather than in funds that focus on narrow market sectors. As well, indexes that cap their holdings at a certain level – 25% in the case of the iShares S&P/TSX Capped Energy Index Fund – can cut your return by reducing the contribution from top performers if they soar to make up more that the capped limit....

Talisman Energy, $20.26, symbol TLM on Toronto (Shares outstanding: 1.0 billion; Market cap: $20.8 billion; www.talisman-energy.com), has sold about $2 billion of its Canadian natural-gas properties to Sasol (ADR symbol SSL on New York), a recommendation of our Stock Pickers Digest newsletter. Talisman now aims to expand its international presence in Latin America and southeast Asia. The company already has interests in the North Sea and northern Africa. Encana, $31.59, symbol ECA on Toronto (Shares outstanding: 735.4 million; Market cap: $23.2 billion; www.encana.com), is cheaper than Talisman in terms of cash flow. But more than that, we think its properties have more potential than Talisman’s, and Encana exposes investors to less political risk, due to its concentration in North America....

CENOVUS ENERGY INC. $33 (Toronto symbol CVE; Conservative Growth Portfolio, Resources sector; Shares outstanding: 753.9 million; Market cap: $24.9 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.4%; TSINetwork Rating: Extra Risk; www.cenovus.com) operates three oil-sands properties in Alberta, and one in Saskatchewan. Cenovus ships the heavy bitumen from these projects to refineries in Illinois and Texas. ConocoPhillips (New York symbol COP) owns 50% of these refineries, as well as 50% of Cenovus’ two main oil-sands projects. Cenovus also owns conventional oil and natural-gas properties. The company has received approval from regulators to expand its Christina Lake oil-sands project in Alberta. It will build this project in three phases; each phase will add 40,000 barrels per day to Christina Lake’s current production of 18,000 barrels per day. Cenovus will complete the first phase in 2014, the second phase in 2016 and the third phase in 2017....

We continue to advise against overindulging in oil stocks. That’s because the Resource sector (including oil) is highly volatile, and no one can accurately predict future oil prices. For instance, after rising to $115 U.S. a barrel, oil dropped 16% in the first week of May 2011, to $97 U.S., on fears that the global economic recovery may be stalling. That’s why investors should stick with well-established oil producers with high-quality reserves and rising production, such as these three. All three should also benefit from the election of the Conservative majority government, which has promised not to impose onerous new carbon taxes or environmental regulations on oil-sands operators....

ENCANA CORP. $31 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $22.8 billion; Price-to-sales ratio: 3.0; Dividend yield: 2.4%; TSINetwork Rating: Average; www.encana.com) continues to use joint ventures to cut the cost of developing its unconventional natural-gas properties. Northwest Natural Gas Co. (New York symbol NWN) will invest $250 million U.S. over the next five years for an undisclosed stake in Encana’s Jonah field in Wyoming. The deal gives Northwest, which distributes gas to 674,000 customers in Oregon and Washington State, a portion of Jonah’s production at a set price. Encana is a buy.

ENCANA CORP $31.24 (Toronto symbol ECA; Shares outstanding: 735.4 million; Market cap: $23.0 billion; TSINetwork Rating: Average; Dividend yield: 2.6%; www.encana.com) had cash flow of $1.29 a share in the three months ended March 31, 2011 (all amounts except share price in U.S. dollars). That’s down 17.3% from the company’s year-earlier cash flow per share of $1.56 a share. Revenue fell 53.0%, to $1.7 billion from $3.5 billion. Lower natural gas prices were the main reason for the drop in revenue and cash flow. (Natural gas accounts for 95% of Encana’s production.) The company’s average selling price for gas fell 18.6% during the quarter, to $5.00 per thousand cubic feet from $6.14 a year earlier. The price decline offset a 2.1% rise in the company’s total production....