encana

Royal Dutch Shell plc (ADR), $76.69, symbol RDS.A on New York, (ADRs outstanding: 1.8 billion; Market cap: $137.9 billion; www.shell.com), owns interests in the many companies that make up the Royal Dutch Shell Group. Together, these companies are engaged in various aspects of the oil and gas industry around the world. Shell also has interests in chemical companies and other energy-related businesses. As well, it owns about 45,000 service stations worldwide. Shell recently completed two major projects in the Middle East: the Pearl gas-to-liquids (GTL) plant in Qatar, which is the world’s largest; and the Qatargas 4 plant, also in Qatar. This is Shell’s first entry into Qatar’s liquefied natural gas (LNG) industry. Shell now participates in LNG supply projects in seven countries. These projects will add growth in an area that had been sluggish for the company....

PLEASE NOTE: Our next Hotline will go out on Friday, April 29, 2011. TECK RESOURCES LTD., $53.83, Toronto symbol TCK.B, rose 8% this week after the company reported better-than-expected first-quarter earnings. In the three months ended March 31, 2011, Teck’s earnings jumped 123.5%, to $0.76 a share from $0.34 a year earlier. These figures exclude several unusual items, such as gains on asset sales. On this basis, the latest earnings beat the consensus forecast of $0.75 a share. Revenue rose 24.9%, to $2.4 billion from $1.9 billion....

ENCANA CORP. $32 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $23.6 billion; Price-to-sales ratio: 2.5; Dividend yield: 2.4%; TSINetwork Rating: Average; www.encana.com) is one of North America’s largest natural-gas producers. The company prefers to focus on large unconventional reserves, including shale gas, which is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas. At current production rates, Encana’s proven reserves should last 12 years.

Encana has lagged behind Cenovus

Encana took its current form when the old EnCana Corp. split itself into two separate companies in December 2009. Since then, the new Encana has gained just 8%. The other company, Cenovus Energy Inc. (Toronto symbol CVE), which focuses on oil-sands projects, has jumped 38%....

ENCANA CORP. $33.69 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $24.9 billion; TSINetwork Rating: Average; Dividend yield: 2.4%; www.encana.com) is paying an undisclosed sum for a 30% stake in a proposed liquefied natural gas (LNG) terminal in Kitimat, B.C. Pipelines will pump gas from big new discoveries in the Horn River area of northeastern B.C. to the Kitimat terminal, which will then convert the gas into a liquid form. From there, tankers will ship the LNG to markets in Asia. Regulators must still approve the project, but exports could start in 2015. Encana is a buy....

The stock market put on a huge rise from mid-2010 through February this year, and this left it ripe for a setback. Japan’s earthquake/tsunami/nuclear plant breakdown provided the trigger for that setback. Events in Japan have been horrific for the victims, of course. The Japanese situation could still weigh on the market for weeks or months to come. However, the damage to Japan is far too isolated and local to put the worldwide economic recovery at risk. World economic growth could slow temporarily while multi-national companies re-think their hiring and investment plans, and consumers re-think major purchases. After they complete their re-thinking, businesses and consumers may speed up their spending to make up for lost time. The outcome of Japan’s nuclear problems could have a big impact. If radiation leakage is widespread, it could spur much more environmental opposition to the nuclear industry. That could shift demand from nuclear to natural-gas power plants, particularly since shale gas discoveries and technology have vastly expanded natural gas reserves in North America and around the world. (One key beneficiary here would be our long-time favourite, Canadian gas producer Encana Corp.)...

The stock market put on a huge rise from mid-2010 through February this year, and this left it ripe for a setback. Japan’s earthquake/tsunami/nuclear plant breakdown provided the trigger for that setback. Events in Japan have been horrific for the victims, of course. The Japanese situation could still weigh on the market for weeks or months to come. However, the damage to Japan is far too isolated and local to put the worldwide economic recovery at risk. World economic growth could slow temporarily while multi-national companies re-think their hiring and investment plans, and consumers re-think major purchases. After they complete their re-thinking, businesses and consumers may speed up their spending to make up for lost time. The outcome of Japan’s nuclear problems could have a big impact. If radiation leakage is widespread, it could spur much more environmental opposition to the nuclear industry. That could shift demand from nuclear to natural-gas power plants, particularly since shale gas discoveries and technology have vastly expanded natural gas reserves in North America and around the world. (One key beneficiary would be our long-time favourite, Encana – see below.)...

I think the political turmoil in the Arab world will eventually turn out to be a good thing for the world economy and stock markets. However, it definitely raises the already high political risk for foreign companies, including oil and gas firms, operating in those countries. In Canadian Wealth Advisor, we’ve long emphasized oil and gas stocks with a strong base of growing operations in Canada and the U.S. That not only eliminates political risk, but lets them profit when turmoil elsewhere pushes up oil and gas prices. Here are six top favourites:...

ENCANA CORP. $31.43 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $23.1 billion; TSINetwork Rating: Average; Dividend yield: 2.6%; www.encana.com) has agreed to form a 50/50 joint venture with PetroChina Company Ltd. (New York symbol PTR) to operate its Cutbank Ridge natural-gas property along the B.C. and Alberta border. Under the terms of the deal, PetroChina will pay $5.4 billion (Canadian) for half of Encana’s Cutbank Ridge assets. PetroChina will also pay half of the Cutbank Ridge’s future development costs. That cuts Encana’s risk. As well, teaming up with PetroChina should help Encana increase exports of gas from the Cutbank Ridge to Asia....

Cenovus Energy Inc., symbol CVE on Toronto, 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. Cenovus split off from EnCana Corp. in December 2009. In 2010, Cenovus earned $993.0 million, or $1.32 a share. That’s up 21.4% from $818.0 million, or $1.09 a share, in 2009. The oil stock’s production rose, as did oil prices. These were the main reasons for the higher earnings. These gains were somewhat offset by higher costs for shipping oil due to problems along the Enbridge pipeline system, and costs to upgrade its U.S. refineries. The oil stock’s cash flow fell 15.1% in 2010, to $2.4 billion, or $3.21 a share, from $2.8 billion, or $3.79 a share in 2009. Lower volumes and selling prices for natural gas were the main reasons for the declines....

Encana Corp. (symbol ECA on Toronto) earned $665 million, or $0.90 a share, in 2010 (all amounts except share price in U.S. dollars). The commodity stock’s latest earnings were down 62.4% from its 2009 earnings of $1.8 billion, or $2.35 per share. Cash flow per share fell to $6.00 from $6.68 in 2009. (Note: The 2009 figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy took place at the start of 2009 instead of December 1, 2009.) Depressed natural gas prices were the main reason for lower earnings and cash flow. (Natural gas accounts for more than 95% of the commodity stock’s average daily production.) Encana’s average selling price for gas fell 22.0 % in 2010, to $5.48 per thousand cubic feet from $7.03 in 2009. The price decline offset a 12.0 % rise in the company’s total production....