investingfromtheright

I am retired and take educated guesses on all things financial.

April 03, 2008

April 3, 2008: EnCana, O! Canada! How We Love Thee.

This may not be the best time to buy EnCana (ECA), but this stock deserves to be on just about every stock picker's short list of outstanding companies possessing long term appreciation.Priced at $76.52 per share and trading significantly above it's 100day moving average, ECA begs to be purchased on the significant dips that occur periodically. Encana pays about a 2% yield, has a PE of 15 and trades over 2.7m shares per day on average. EnCana's decision to double the dividend a second year in a row reflects the sustainability of the company's strategy and reinforces management's commitment to capital discipline.

EnCana is a large natural gas producer and more. The company is one of the largest holders of natural gas and resource lands in North America. EnCana's other operations include the transportation and marketing of crude oil, natural gas and natural gas liquids, as well as the refining of crude oil and the marketing of petroleum products. All of EnCana's proved reserves and production are located onshore in North America. ECA is also engaged in recent select exploration activities internationally. Last year, ECA entered into a comprehensive business partnership with ConocoPhillips, thus creating for EnCana an integrated oil base of operations and compliment its existing energy model.

As an example of the company diligence, natural gas production from existing acreage in 2007 was about 760,000boe/d. By 2012boe/d is expected to be at 1,000,000. Additional energy finds through ECA's individual and partnership efforts will only sweeten that figure.

ECA also maintains a strong position in the Alberta oil sands area. A portion of their partnership with ConocoPhillips is a joint effort to increase the capacity and efficiency of the Wood River refinery, which refines oil sands crude.

EnCana's strategy continues to target a moderate and sustainable growth rate coupled with capital discipline and a strong emphasis upon execution. Management has indicated that due to high commodity prices, the company would likely use incremental cash flow to buy back shares or pay down debt rather than for increased drilling. Encana's drilling costs are about 11% less than the industry average and the company seems to always take the long term view of success in the energy patch.

Natural gas growth continues to benefit from higher volume at several of EnCana's unconventional gas plays, including the Amoruso field in East Texas, the Jonah field in Wyoming and Cutback in northeast British Columbia. Low cost and large scale positioning in the North American gas basins bode well for ECA.

This brief article covers Chapter One of the Encana story. Investors are encourged to explore EnCana further at www.encana.com to obtain a more comprehensive feel for this superbly run entity.

DISCLOSURE: THE AUTHOR HOLDS A LONG POSITION IN ECA WITHIN HIS PERMANENT PORTFOLIO.


PS - I will be out of town on real estate business through Saturday. Some new, some foreclosure. All fun.

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