Encana took its present form on December 1, 2009, after the old EnCana Corp. split itself into two new companies: the new Encana, which focuses on natural gas, and Cenovus Energy, which specializes in oil sands. Falling gas prices have pushed Encana’s shares down about 30% since the split. Oil prices have weakened lately, but Cenovus’ shares are up about 14%.
ENCANA CORP (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its reserves should last over 11 years.
Encana’s cash flow was $1.08 a share in the three months ended June 30, 2012 (all amounts except share price in U.S. dollars). That’s down 27.0% from $1.48 a share, a year earlier.
Natural gas accounts for 95% of Encana’s production. In response to falling gas prices, the company lowered its output during the quarter; this was the main reason for the lower cash flow.
The company is now shifting its production toward oil and natural gas liquids (NGLs). As part of this plan, it’s spending an extra $600 million on its oil and NGL properties this year, on top of the $2.9 billion it had planned to spend on all of its capital projects.
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Energy stocks: Cenovus ahead of schedule on joint oil sands project at Christina Lake
CENOVUS ENERGY (Toronto symbol CVE; www.cenovus.com) operates three oil sands projects in Alberta and one in Saskatchewan. The company ships the heavy bitumen from these assets to refineries in Illinois and Texas.
ConocoPhillips (New York symbol COP) owns 50% of these refineries and 50% of Cenovus’s two main oil sands projects. Cenovus also owns conventional oil and natural gas properties.
In the three months ended June 30, 2012, Cenovus’s cash flow per share fell 1.6%, to $1.22 from $1.24 a year earlier. Lower oil prices offset a 27.8% increase in production, to 155,566 barrels of oil per day from 121,762 barrels.
Cenovus has started producing oil at the fourth phase of its Christina Lake oil sands project in Alberta. The startup is three months ahead of schedule and within budget. ConocoPhillips owns 50% of Christina Lake.
It will take six to nine months for this phase to reach full capacity. At that time, it will produce 40,000 barrels a day (Cenovus is entitled to 20,000 barrels). To put that in context, Cenovus’s share of all of Christina Lake’s production in the latest quarter was 28,577 barrels a day.
In the latest issue of Canadian Wealth Advisor, we look at the high costs Encana faces as it develops its projects. We also consider the long-term outlook for Cenovus’ oil sands projects and whether its share price can keep rising if oil prices continue to decline. We conclude with our clear buy-hold-sell advice on these two stocks.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Natural gas prices are at 10-year lows, yet many believe an improving economy, as well as higher demand in Asia for liquefied natural gas (LNG), will push up prices. Do you believe natural gas prices will rise—and how soon? Let us know what you think in the comments section below. Click here
Comments
Louis
Pat,
It seems to me that the price will go up as the demand increases. For the demand to increase the infrastructure for delivery will have to be installed. So I see it as a balance between low cost of NG creating a demand which can only become tangible when the market is developed – infrastructure is installed. This will also require infrastructure at the source end of the supply chain.
I think the cost of NG must increase as demand increases but it will take several years to develop the infrastructure and consume the vast amounts of spare gas that is currently locked in.
Thank you for all the great help and support.
Louis
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Pat,
It seems to me that the price will go up as the demand increases. For the demand to increase the infrastructure for delivery will have to be installed. So I see it as a balance between low cost of NG creating a demand which can only become tangible when the market is developed – infrastructure is installed. This will also require infrastructure at the source end of the supply chain.
I think the cost of NG must increase as demand increases but it will take several years to develop the infrastructure and consume the vast amounts of spare gas that is currently locked in.
Thank you for all the great help and support.
Louis