Encana: Expect 20% To 30% Downward Revision To 2015 Capex
- Encana has guided for $2.7 to $2.9 billion in capital investments in 2015. With lower oil prices, I expect a significant decline in spending.
- Encana is largely unhedged, but profitable at $50 per barrel oil. However, lower cash flows would mean lower investments as Encana plans no debt addition in 2015.
- I expect OCF in the range of $1.5 to $1.6 billion at $50 per barrel oil. The company's guidance of $2.5 to $2.7 billion OCF was at $70 oil.
- Assuming average Nymex prices of $70 per barrel for oil and $4 per MMBtu for gas next year, Encana’s shares are trading at ~3.3x 2015 estimated pre-hedge cash flow.
- The company has sufficient resources to execute its 2015 business plans without major curtailments even under a $55 oil/$3.50 gas scenario.
- However, Encana still has a lot to prove with regard to the economic viability of its asset base in a low-price commodity environment.
- At its current price, the stock represents an intriguing bet on a cyclical recovery in oil.
- It would be natural to expect that Encana eventually streamlines its portfolio to the four most strategic assets, with divestitures providing funds for accelerated development.
- Encana's asset disposition and subsequent acquisitions have transformed the company into a liquids rich and high netback generating entity.
- Encana will remain profitable even at $50 per barrel oil and the stock looks attractive at current levels.
- Sound financial health with low debt and ample liquidity to ensure accelerated asset development even in difficult times.
- Self-funding Permian Basin asset is a key long-term game changer.
- Athlon acquisition effectively pushed the TMS to a marginal position in Encana’s portfolio.
- A divestiture of the TMS in 2015 is likely, in my opinion.
- Strong recent well results and consistent execution make the asset potentially attractive to acquirers, assuming a meaningful oil price recovery.
Encana's Value Drive Also Offers Volumes From Texas Oil Plays
- Encana continues to highlight its new chapter in the North America energy story, focusing on efficiencies, better margins and cash flow.
- While seemingly coming from the rear of the industry pack, according to markets past, the best may yet be to come.
- The addition of a Permian oil position via the Athlon acquisition and the Eagle Ford offers a new foothold into the highest-producing oil plays in the U.S.
- The volatility in the natural gas prices have forced the company to focus more on liquids.
- The addition of high-margin assets will enhance the profitability of the company.
- Encana's focus on liquids will bring stability to the revenues as well as cash flows.
- Tuscaloosa Marine Shale has a massive growth potential due to its massive oil reserves and it can add 50,000 Bbls/d to Encana's production.
- The sale of 1.2 million coalbed methane acres and 180 MMcf/d of production in Alberta is unlikely to be the last in the series of divestitures by Encana.
- The Athlon acquisition creates a need for significant amount of capital for development.
- Additional gas assets are likely to be monetized.
- Select oil and liquids-rich plays, such as Tuscaloosa Marine Shale, may also end up rationalized, in my opinion.
- The recently announced Athlon acquisition diversifies Encana's geographic footprint in a premier U.S. basin.
- The addition of Permian Basin acreage also offers added profitability in the form of a greater oil-weighted portfolio for Encana.
- While no two Permian pure-plays are the same, some similarities can be compared and contrasted to help investors understand the relative scale of players.
What Does Encana's Acquisition Say About The Return Potential Of Its Existing Asset Base?
- Encana is offering to acquire all of Athlon’s shares at a 25% premium over last Friday’s close.
- While the quality of Athlon’s asset base is high, so is the acquisition price.
- The transaction wipes out Encana’s cash resource that could have been directed at an accelerated development of the company’s existing vast asset base.
- Generating an attractive return on the acquisition may be a challenge due to the high upfront price.
Encana Acquires Athlon Energy: Permian Offers Long-Term Growth
- ECA acquires ATHL for $58.50/share, a 25% premium to last Friday's close.
- ATHL's quality asset ensures ECA's long-term growth.
- Hefty premium on asset but a necessity for attractive asset and growth potential.
Encana: Is Another Major Acquisition On The Horizon?
- Following the expected closing this month of pending divestitures, Encana’s cash balance will likely exceed $6 billion.
- Barring a special dividend announcement, a major acquisition or a series of acquisitions appear almost inevitable.
- Using the cash to accelerate the development of the company's already vast asset base appears to be a more compelling approach.
Encana's Turnaround Story Is Not As Good As It Seems To Be
- The company’s second quarter performance was positive and reflected steady progress thanks to the company’s turnaround strategy.
- Encana has positioned itself to deliver strong liquid-based production growth primarily due to its acquisition of 45,000 acres of land in the lucrative Eagle Ford shale.
- There are certain risks attributed to the company’s turnaround strategy as it is selling its natural gas assets at a time when natural gas price is trading at low levels.
- Conversely, it is acquiring oil-based assets at a time when oil is trading at a high level. So the company is facing a twofold problem.
- New management did not disclose many specifics in last CC.
- Several offsetting operators have provided more color about ECA in their own Q2.
- Overall strong operating performance; TMS on track to commercial status by year end.
- ECA is ahead by one to two years on their restructuring plan.
- Significant upward revision for the year: Operational Cash Flow at $3.5B and Free Cash Flows (after dividends) now expected at $500M.
- Operational results: At or above type curve in every play.
- Liquids growth accelerating fast while keeping significant natural gas option for the future.
- Q4 production estimates are given as well as several strategic targets to consider.
- The turnaround is happening faster than expected at ECA.
- It's not a pure play on natural gas anymore; the company has a diversified set of assets across NG, NGLs, and oil.
- ECA is among the best shale assets in North America.
- It has an accelerating growth trajectory with strong financial strength.
- The recent pullback in shares is a buying opportunity.
Encana: Staying Bullish As The Company Plans To Sell Its Deep Panuke Assets
- Encana is preparing to sell its Deep Panuke offshore gas project in Nova Scotia in a deal that could fetch $1B-$2B, although I think such a range is slightly conservative.
- Although Deep Panuke contributed to more than 30% of ECA’s Q1 operating cash flow of $1.1 Billion, management doesn't think the asset fits the company's long-term strategy.
- The sale of the company's Deep Panuke assets should help improve the company's near-term trend performance.
- Doug Suttles is taking the struggling company to new heights of success.
- The company is focusing more on increasing oil and liquid production over natural gas.
- The DJ basin asset of Encana is one of the high -return and liquid-rich assets, which in turn will help the company to sustain its long-term growth.
- Unlocking values by selling natural gas assets will help Encana meet its target of generating 75% of 2017 operating cash flow from liquid production.
Major Changes At Encana Make It A Legitimate Oil Growth Play Now
- Encana revenues and earnings benefited from higher natural gas prices in Q1 2014.
- Encana management has made several positive fiscal moves.
- Encana announced the acquisition of 45,500 net acres of Eagle Ford Shale. These will be immediately accretive to earnings.
- Recent EOG results with both higher levels of fracking proppant and slick water fracking will likely increase IPs and EURs by huge amounts.
- Encana should be able to copy EOG’s technology for its Eagle Ford acreage. This should increase current estimates significantly, including reserves.
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Dec. 22, 2014, 4:59 PM
- Encana (NYSE:ECA) and Mitsubishi subsidiary Cutbank Dawson Gas Resources agree to sell natural gas gathering and compression assets supporting Montney development in the Dawson area of British Columbia to a partnership of Veresen (OTC:FCGYF) and KKR for C$412M.
- Veresen will provide gathering and compression services to ECA under a fee-for-service arrangement in a dedicated area of mutual interest within the Montney, and aims to spend up to C$5B of new midstream expansion to support development within the Montney; the ECA partnership plans to invest $600M-$700M in the play in 2015.
Dec. 22, 2014, 10:45 AM
- Natural gas prices fall 9.5% to near two-year lows at $3.133/mmBtu, in the biggest one-day percentage loss since February and the lowest intraday price since January 2013, on mild weather forecasts and inventory that is above year-ago levels.
- Prices are now down more than 15% in three straight losing sessions and are 30% lower than the six-month high closing price of $4.489/mmBtu it hit just a month ago.
- Weather has been unseasonably warm for December, limiting demand for home heating and allowing relatively low stockpiles to catch up to where they were a year ago and encouraging traders to sell based on the belief that supply is relatively healthy.
- Gas producers are among the biggest early decliners: XOM -1.1%, CHK -7.3%, APC -2.6%, SWN -6%, DVN -2.2%, COP -2.3%, BP -1.5%, COG -4%, BHP -1.9%, CVX -1.3%, ECA -5.1%, EQT -4.3%, RDS.A -1.7%, UPL -12%, WPX -6.9%, EOG -1%, OXY -1.1%, RRC -6.1%, APA -2.3%, AR -3.2%, CNX -3%, QEP -4.8%, LINE -4.9%, NBL -1.6%, SM -2.6%, XEC -4.2%, PXD -2.9%, NFX -5.1%.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, NAGS, DCNG
Dec. 16, 2014, 7:55 AM
- Bucking the recent industry trend, Encana (NYSE:ECA) says it plans a capital spending program of $2.7B-$2.9B in 2015, higher than its earlier estimate of $2.5B-$2.6B, as it shifts focus to its four higher-margin oil-rich shale fields.
- ECA will direct ~80% of its spending to four of its highest margin growth plays: the Montney in British Columbia, Duvernay in Alberta, and the Eagle Ford and Permian shale plays in Texas.
- ECA estimates total liquids production will grow ~70% Y/Y to 140K-160K bbl/day and anticipates overall production of 405K-440K boe/day.
- However, ECA lowers its 2015 cash flow estimate to $2.5B-$2.7B from its earlier outlook of $3.2B-$3.3B, due partly to lower commodity prices.
Nov. 20, 2014, 11:08 AM
- Encana (ECA +2.3%) CEO Doug Suttles says he is looking to "accelerate, not slow down" in the current environment of declining crude oil prices, which he calls “annoying... not threatening."
- As some competitors cut spending plans for 2015, ECA plans to ramp up activity as it doubles the number of rigs targeting oil in the Permian basin, where it closed a $5.9B deal to buy Athlon Energy last week; the CEO says ECA’s spending won’t exceed cash coming in, and it could moderate drilling if oil prices plunge further.
- Suttles says it’s good that ECA is 24 months ahead of schedule in rebalancing its oil and natural gas liquids output; after swapping gas properties for oil fields, gas now makes up two-thirds of output vs. 90% a year ago.
- Regardless of whether ECA is producing more oil from attractive lands, crude’s price collapse comes at a terrible time, says one analyst: “Losing 30% of your cash flow overnight is definitely going to impact you.”
Nov. 18, 2014, 12:58 PM
- Encana (NYSE:ECA) could nearly double in the next year, as its ambitious restructuring plan, which includes a 20% workforce reduction and spinning off its Alberta land holdings into a separate company, should begin to pay off, RBC Capital analysts say.
- Because of the recent broad decline in energy stocks, investors have not priced in the effects of the restructuring, RBC says; ECA is trading at a debt-adjusted cash flow multiple of 5.5x vs. an average 6x for its E&P peers.
- The firm believes ECA "has some of the best real estate on the block when it comes to North American resource plays and possesses solid execution capability."
Nov. 12, 2014, 9:19 AM
- Encana (NYSE:ECA) +0.6% premarket after Q3 results showed operating earnings nearly doubled Y/Y but failed to meet analyst expectations.
- ECA says the recent acquisition of Athlon Energy, together with other portfolio adjustments, puts it on track to realize 75% of its operating cash flow from liquids production in 2015, two years ahead of plan.
- Says it achieved a major milestone during Q3 by exceeding 100K bbl/day of total liquids production; the 79% Y/Y increase to 104K bbl/day was driven in part by volumes from recently acquired properties in the Eagle Ford shale field.
- Natural gas production fell 19% to 2.2B cf/day.
- Cash flow climbed 22% to $807M, or $1.09/share.
Nov. 12, 2014, 6:16 AM
Nov. 11, 2014, 5:30 PM
Nov. 4, 2014, 12:18 PM| Comment!
Oct. 8, 2014, 8:18 AM
- Encana (NYSE:ECA) agrees to sell the majority of its Clearwater assets in southern and central Alberta to Ember Resources (OTC:EMBFF) for ~C$605M.
- The sale includes ~1.2M net acres of land and 6,800-plus producing wells with Q2 average production of ~180M cfe/day of natural gas.
- ECA retains ~1.1M net acres in Clearwater.
Sep. 29, 2014, 12:26 PM
- Encana’s (ECA +2.3%) takeover of Athlon Energy (ATHL +24.6%) is good news for Diamondback Energy (FANG +2.3%) and Energen (EGN +2.2%), according to analysts at Sterne Agee.
- The acquisition implies a value of $98/share for FANG, Sterne says, based on FANG's 85K net acre leasehold position, estimated 19.8K boe/day of Q3 production, $585M of assumed debt, and a $1.7B market value for the Viper Energy Partners (NASDAQ:VNOM) units it owns.
- The firm sees even more upside for EGN, as ECA’s price implies a value of $102/share for EGN, based on 180K net acres across both sides of the Permian Basin, 48K boe/day of Q3 Permian Basin production, 132M cfe/day of Q3 San Juan Basin, and $835M of pro forma net debt as of Sept. 30.
- Permian producers Laredo Petroleum (LPI +5%), Parsley Energy (PE +5%) and RSP Permian (RSPP +4.8%) also are higher following the acquisition news.
Sep. 29, 2014, 7:27 AM
- Encana (NYSE:ECA) agrees to acquire Athlon Energy (NYSE:ATHL) for $58.50/share in cash plus assumption of $1.15B of senior debt, bringing the total transaction value to ~$7.1B.
- The deal gives the no. 2 Canadian gas producer a large stake in Texas' oil-rich Midland Basin.
- ECA says the deal adds 140K net acres of land and production of ~30K boe/day, and that it will spend $1B next year to boost drilling in the new play.
- ATHL +24.3% premarket.
Sep. 26, 2014, 10:32 AM
- Encana (ECA +0.1%) says it completed the sale of its remaining stake in PrairieSky Royalty (OTC:PREKF) in a secondary offering valued at ~$2.6B.
- The stock was sold to a syndicate of underwriters led by several of Canada’s biggest banks at a pre-agreed price of $36.50, which was $2 above PrairieSky’s closing stock price yesterday.
- "The creation of PrairieSky has unlocked significant value from Encana's royalty business and the successful closing of the secondary offering marks a major milestone of the strategy we announced last November," CEO Doug Settles says.
Sep. 9, 2014, 2:58 PM
- Encana (ECA +2.6%) will have the flexibility to make more acquisitions after it completes the sale of its C$2.6B ($2.4B) stake in PrairieSky Royalty, CFOfficer Sherri Brillon says.
- ECA’s $3.1B purchase in May of Eagle Ford shale properties from Freeport McMoRan - which helped to double ECA's oil output - is an example of the kind of acquisitions it may make, Brillon says.
- ECA probably would favor purchases in the U.S. over Canada to expand in the Eagle Ford or boost its position in the Denver-Julesburg basin, Macquarie's Chris Feltin believes.
Sep. 8, 2014, 5:45 PM
- Encana (NYSE:ECA) says it will sell its remaining 70.2M-share stake in PrairieSky Royalty (OTC:PREKF), the company it spun out to investors in May, in a C$2.6B secondary offering.
- The C$36.50/share offering price is 30% higher than Prairie Sky's IPO price but a 4.2% discount to today's closing price in Toronto.
- ECA does not say what it plans to do with the proceeds, but it has been raising funds to boost its oil production.
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