Natural gas prices rebounded recently after almost three years of depressed prices. In those years, warm winters cut into gas used for heating, and that’s a major part of total gas use. As a result, gas in storage grew and prices stagnated. A glut of shale gas due to improved drilling technology also held prices down.
This year record low temperatures spiked demand, although prices have declined somewhat this week. Here are two stocks that gain when gas prices rise.
ENCANA CORP. (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers.
In the three months ended September 30, 2013, Encana’s cash flow per share fell 28.2%, to $0.89 from $1.24 a year earlier (all amounts except share price and market cap in U.S. dollars). The decline mostly came from lower realized gas prices.
Encana now plans to cut its dependence on gas. This year, it will devote 75% of its $2.4 billion to $2.5 billion of capital spending to five properties that produce oil and natural gas liquids (NGLs), such as butane and propane. The company expects oil and NGLs to supply 75% of its cash flow by 2017, up from about 35% today.
In addition, Encana has completed its previously announced plan to lay off 20% of its workforce. Severance payments and other related costs cut its earnings by $65 million in the fourth quarter of 2013.
The company’s shares yield 1.4%.
Energy stocks: Bonavista aims to drill up to 150 new wells in 2014
BONAVISTA ENERGY (Toronto symbol BNP; www.bonavistaenergy.com) explores for oil and natural gas in Alberta, Saskatchewan and British Columbia. Its production is 63% gas and 37% oil.
In the three months ended September 30, 2013, Bonavista’s cash flow per share gained 27.1%, to $0.61 from $0.48 a year earlier. Its production rose 12.5%, to 73,632 barrels of oil equivalent a day (including gas) from 65,464.
Bonavista plans to spend $500 million to $550 million on exploration and development in 2014. The company’s plans include drilling an estimated 140 to 150 wells, which will let it push up its average 2014 production to as high as 79,000 barrels of oil equivalent a day.
The company’s shares yield a high 5.6%. Bonavista pays out just 35% of its cash flow as dividends.
In the latest issue of Canadian Wealth Advisor, we look at Encana’s cash flow outlook for the coming year as the company begins to reduce its dependence on gas. We also weigh Bonavista’s cash flow forecast and long-term debt against its plans to step up exploration and development in 2014. We conclude with our clear buy-hold-sell advice on these two stocks.
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As Encana and Bonavista deal with changing natural gas prices, one has a much higher dividend yield than the other. Would this be enough to make you prefer one stock over the other? Have you held cyclical energy or resource stocks that had high dividends even when resource prices were down and the share prices lagged?
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