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 (Toronto symbol CVE), which specializes in oil sands.
Falling gas prices have pushed Encana’s shares down by about 34% since the split. Oil prices have weakened lately, but Cenovus’s stock is still up about 22%.
ENCANA CORP. (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its proven reserves should last over 14 years.
In the three months ended September 30, 2012, Encana’s cash flow per share fell 22.5%, to $1.24 from $1.60 a year earlier (all amounts except share price and market cap in U.S. dollars).
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.
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Energy stocks: Deal with Petro-China fits new foreign investment rules from Ottawa
Encana has formed a joint venture with Petro- China, which is controlled by the Chinese government, to develop its Duvernay property in Alberta.
Under the deal, Encana sold 49.9% of Duvernay to PetroChina for $2.2 billion (Canadian). Encana will own the remaining 50.1% and will operate the project. PetroChina has already paid Encana $1.2 billion. It will pay the remaining $1.0 billion over the next four years.
Since PetroChina is buying only a minority interest in this project, the deal complies with the federal government’s new foreign investment guidelines. Ottawa brought in these new rules in response to the takeover of oil sands operator Nexen Inc. by another state-owned Chinese oil company.
In the latest issue of Canadian Wealth Advisor, we look at whether joint ventures like the one with PetroChina can spur new growth for Encana despite the slump in gas prices and the cutbacks in production. We conclude with our clear buy-hold-sell advice on this stock.
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