Friday, January 14, 2011

EnCana (NYSE:ECA) Should Move Up Leading to JV Decision with China National Petroleum

Even though EnCana (NYSE:ECA) has been down over the last year on lower natural gas prices, it's expected that they'll push up leading to an announcement one way or the other on whether the deal will go forward.

Ticonderoga says, "Shares of EnCana Corp. (ECA, Neutral) had a strong move yesterday on speculation of a pending joint venture (JV) between ECA and state-owned China National Petroleum Corp. (CNPC). In June 2010, the two companies had signed a memorandum of understanding (MOU) to explore JV options in British Columbia’s (BC) Horn River and Montney Shale gas fields, and it appears a deal could be imminent. We would view the potential JV as a short-term positive for ECA and would expect the shares to outperform in the period leading up to the announcement...ECA’s shares are down 12% over the past 12-months as weak natural gas prices have taken a toll on the company. ECA’s proved reserves and current production are 96% gas weighted, and low gas prices have slashed operating margins (EBITDA/Mcfe: 2009 $5.43, 2010e $3.71, 2011 $3.44) and cash flow.

"We currently estimate ECA’s 2011 cash flow at $4.2B, which is $1.2B short of our projected capital spending of $5.4B."

Ticonderoga reiterates a "Neutral" rating on EnCana Corp. (ECA), which was trading at $31.28, up $0.59, or 1.92 percent, as of 1:42 PM EST.

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