Asset Sales Cut EnCana’s Risk and Debt

Article Excerpt

ENCANA CORP. $49 (Toronto symbol ECA; SI Rating: Average) has agreed to sell its natural gas storage operations for $1.5 billion (all amounts except share price in U.S. dollars). The sale will generate an after-tax gain of about $850 million. That’s roughly two-thirds of the $1.3 billion or $1.46 a share that EnCana earned before non-recurring items in the fourth quarter of 2005. This sale is the latest part of EnCana’s plan to sell non-core assets, and focus on projects with greater long-term growth potential, such as early stage natural gas fields and oil sands developments. Recent asset sales, including the gas storage business, should give EnCana $3.3 billion in cash. It plans to use the cash to pay down its long-term debt of $6.7 billion (42% of shareholders’ equity) and buy back more stock. Strong demand for drilling equipment and labour has driven up EnCana’s operating costs. Gas prices are also coming down from their 2005 peaks. Consequently, EnCana will spend…

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