EnCana Shelves Plans To Spilt Itself

After climbing above C$70-billion this summer, EnCana Corp.’s (ECA) market capitalization has been cut by more than half to approximately C$33-billion. So it comes as little surprise that it has shelved plans to split itself into two companies –  one focused on shale gas plays in North America and a separate integrated oil sands company.

Canaccord Adams analyst Richard Wyman told clients:

We surmise the delay in the corporate reorganization is based on concerns that the successor entities are each small enough to be susceptible to unwelcome takeovers.

EnCana is trading at around C$14.33 per barrel of oil equivalent [boe] with 3.1 billion boe of proven reserves at the end of 2007. But this valuation does not include upside from the company’s huge undeveloped land position, the analyst noted, suggesting this makes the company very attractive to a potential acquisitor.

Mr. Wyman continues to rate EnCana a “buy” with a $115 price target, which represents upside of more than 200%.

The current commodity price environment suggests EnCana will put more emphasis on investing for return on capital than growth in 2009.

The analyst said:

EnCana is one of the lowest cost operators in the industry so its financial performance is reasonably resilient to natural gas price volatility.

EnCana is also expected to resume its share buyback program now that its reorganization plan is indefinitely postponed.