encana

Canada’s oil sands continue to face strong opposition from environmentalists. That’s mainly because the process of recovering heavy oil from the oil sands produces higher carbon emissions than conventional sources. However, new technology has let oil stocks cut way down on their oil-sands emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development.

Cenovus: a diversified producer with a focus on the oil sands

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BCE INC., $35.90, Toronto symbol BCE, continues to profit from recent upgrades to its wireless and high-speed Internet networks. As a result, BCE’s earnings rose 11.9% in 2010, to $2.2 billion from $1.9 billion in 2009. The company spent $500 million on share buybacks in 2010. Because of fewer shares outstanding, earnings per share rose 13.6%, to $2.84 from $2.50. These figures exclude costs related to a restructuring plan, which included cutting jobs, relocating employees and selling excess real estate. The latest earnings also beat the consensus estimate of $2.83 a share. Revenue rose 1.9% in 2010, to $18.1 billion from $17.7 billion. Wireline revenue (which accounts for 57% of BCE’s total revenue) rose just 0.3%. New high-speed Internet and satellite-TV subscribers offset lower local and long-distance telephone revenue. At the end of 2010, the company had 2.1 million high-speed Internet subscribers (up 2.0% from a year earlier) and 2.0 million TV subscribers (up 3.7%)....

Canada’s oil sands still face strong opposition from environmentalists. However, new technology has sharply lowered the oil sands’ greenhouse-gas emissions. As well, turmoil in Egypt and other Middle Eastern countries highlights the oil sands’ strategic importance to the U.S. and Canada. These factors make it less likely that Ottawa will introduce regulations that would slow oil-sands development. These three oil-sands producers have all moved up lately, but they still have plenty of room to grow. SUNCOR ENERGY INC. $40 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $64.0 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.0%; TSINetwork Rating: Average; www.suncor.com) became Canada’s largest oil company when it merged with Petro-Canada in August 2009. About 50% of Suncor’s production is conventional oil and natural gas. The remaining 50% comes from oil sands, including the company’s 12% stake in the massive Syncrude development. Suncor aims to expand its oil-sands operations until they account for about 70% of its production....

ENCANA CORP $31.86 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $23.4 billion; TSINetwork Rating: Average; Dividend yield: 2.5%; www.encana.com) is selling its natural-gas processing plant and five pipelines in Colorado. Encana will receive $303 million U.S. when the sale closes by March 31, 2011. It did not say what it plans to do with the cash. The company is now looking for partners to help it finish building its Cabin gas plant in northeastern B.C. Starting in 2012, this plant will process gas from the large Horn River shale-gas field. (Shale gas 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.)...

PLEASE NOTE: Next week, Wall Street Stock Forecaster, our newsletter that focuses on the U.S. stock markets, will reveal its #1 pick for 2011. If you’re not already a Wall Street Stock Forecaster subscriber, click here to learn how you can get one month — including the Wall Street Stock Forecaster Stock of the Year —FREE. ENCANA CORP., $32.00, Toronto symbol ECA, is selling its natural-gas processing plant in Colorado, as well as five pipelines that pump gas into this plant. Encana will receive $303 million when the sale closes by March 31, 2011 (all amounts except share price in U.S. dollars). To put this figure in context, the company earned $98 million, or $0.13 a share, in the three months ended September 30, 2010. The company did not say what it plans to do with the cash....

ENCANA CORP. $29 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $21.4 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.8%; TSINetwork Rating: Average; www.encana.com) continues to cut its capital spending in response to low natural-gas prices. Gas prices have suffered because new drilling technologies have made it easier to extract gas from shale rock and other unconventional sources. That has increased gas supplies. In 2010, Encana had planned to spend $5 billion to explore and develop its properties (all amounts except share price and market cap in U.S. dollars). However, it later cut that to $4.8 billion. The company will probably spend between $4.0 billion and $4.5 billion in 2011, but it can quickly raise spending and boost production if gas prices improve. Encana is a buy.

ENCANA CORP $29.14 (Toronto symbol ECA; Shares outstanding: 735.3 million; Market cap: $21.4 billion; TSINetwork Rating: Average; Dividend yield: 2.8%; www.encana.com) earned $98 million, or $0.13 a share, before one-time items in the three months ended September 30, 2010 (all amounts except share price in U.S. dollars). The latest earnings were down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Revenue rose 10.2%, to $1.5 billion from $1.3 billion on higher production. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier 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 the lower earnings and cash flow. (Natural gas accounted for 96% of Encana’s average daily production in the latest quarter.) Encana’s average selling price for gas fell 29.2% during the quarter, to $5.27 per thousand cubic feet from $7.44 a year earlier. The price decline offset a 15.2% rise in the company’s total production....

It has been a year since the old EnCana split itself into two new companies: the new Encana focuses on unconventional natural gas, and Cenovus Energy specializes in oil-sands projects. Encana is down slightly since the breakup, due to low natural-gas prices. However, Cenovus has gained 20%. We continue to see both stocks as buys for long-term gains. ENCANA CORP. $28 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.3 million; Market cap: $20.6 billion; Price-to-sales ratio: 2.1; Dividend yield: 2.9%; TSINetwork Rating: Average; www.encana.com) is a leading North American natural-gas producer. It focuses on unconventional reserves, such as shale-gas deposits. (Shale gas is natural gas that is trapped in rock formations.)...

ENCANA CORP., $28.26, Toronto symbol ECA, fell 7% this week after the company reported lower-than-expected earnings. In the three months ended September 30, 2010, Encana earned $98 million, or $0.13 a share (all amounts except share price in U.S. dollars). These figures exclude a $331-million gain on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $140-million foreign-exchange gain. On this basis, the latest earnings fell well short of the consensus estimate of $0.19 a share. They were also down 74.1% from the company’s year-earlier earnings of $378 million, or $0.50 a share. Cash flow per share fell 9.4%, to $1.54 from $1.70. (Note: The year-earlier figures assume that the breakup of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

ENCANA CORP. $30 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 736.2 million; Market cap: $22.1 billion; Price-to-sales ratio: 1.8; Dividend yield: 2.8%; SI Rating: Average) 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 proved reserves should last 12 years. However, these properties could last 50 years if you include harder-to-reach reserves. Despite weak gas prices, Encana plans to double its gas production over the next five years. That would help raise its market share, because low gas prices have prompted many of its competitors to cut production....