Expensive Projects Add to EnCana’s Risk

Article Excerpt

ENCANA CORP. $55 (Toronto symbol ECA; SI Rating: Average) has sold most of its conventional natural gas properties in the past few years to concentrate on what it calls “unconventional resource plays” in North America, including early-stage gas fields. These properties, typically located in remote, mountainous areas, increase EnCana’s drilling and development costs. However, the company feels that the longer production potential of these fields will more than offset any up-front costs. Another part of EnCana’s strategy is to expand in the Alberta oil sands region. It has two projects in operation there, and is developing a third. Oil sands now account for just over half of EnCana’s oil output, or roughly 10% of its entire 2005 production. The company aims to expand oil sands production 10-fold by the end of 2015. However, oil sands projects are extraordinarily complex, and the final cost is usually much higher than the original estimate. Higher oil prices have led to a surge in drilling activity, and…

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