Replies to post #4001 on CKUA

[Arctec]

EnCana cut to ‘sell' at Citigroup

ROMA LUCIW
Friday, December 15, 2006
A major U.S. brokerage has slapped a ‘sell' rating on EnCana Corp., a bearish assessment based on skyrocketing costs, reduced spending and the notion that things are unravelling quickly for Canada's largest energy company.

“While EnCana appears to be taking prudent steps to reduce capital spending and divert excess cash towards shareholders, we are concerned that the company is struggling against a portfolio that is more than fully valued,” Citigroup Inc. analyst Gil Yang, based in New York, wrote in a research note.

He downgraded EnCana all the way from ‘buy' to ‘sell', and chopped his price target 22 per cent to $47 (U.S.) from $60, citing concerns about the quality of the Calgary-based company's portfolio. The analyst also trimmed his fourth-quarter, 2007 and 2008 earnings estimates.

Shares of EnCana, which have risen 8.6 per cent so far this year in Toronto, fell $3.60 (Canadian) or 5.93 per cent to $57.09 on Friday. The New York-traded stock lost $2.34 (U.S.) or 4.47 per cent to $50.01. It has risen 11 per cent in 2006.

EnCana itself lowered its 2007 guidance on Thursday, forecasting that output will be about 713,000 barrels a day after royalties, down from 717,000 expected this year. The company also said it would cut spending by 6 per cent as it spends less on drilling in 2007 and transfers half of its oil sands business to a partner.

EnCana's board did, however, decide to double the quarterly dividend in 2007, leading to an annual payout of 92 cents (Canadian), up from 46 cents.

Mr. Yang noted that the “disappointing” 2007 forecast for 1 per cent overall production growth is lower than the goal EnCana executives had set out just five weeks ago at an investor day in Calgary and New York.

Just over a month ago, the company changed course and introduced a new strategy of building value. At the time, it looked to increase natural gas production by 5 per cent each year, down from an earlier goal of 10 per cent, and to return excess cash to shareholders.

As of Thursday, the company is forecasting 2007 production growth of just 3 per cent for natural gas and a 5 per cent decline for oil, an overall target of 1 per cent growth.

“Our biggest concern is that despite the effort on capital discipline, the company has already made in 2006, finding and development costs appear to have sky rocketed by 25 to 50 per cent in 2006,” Mr. Yang said. That rise is happening in an inflationary environment of only 12 to 15 per cent this year.

Operating costs at EnCana are rising rapidly as well, and the company's efforts to farm out acreage to other firms will take time to pay off.

“Even in the absence of the problems the company appears to have in its portfolio, we feel that EnCana shares are fully valued,” Mr. Yang said. “With our lack of confidence that the portfolio can deliver adequate returns in the current environment, we think that the stock is overvalued.”

Analysts who follow EnCana stock are divided on its prospects. According to those tracked by Bloomberg, 14 have a “buy” rating, nine have a “hold,” and four have a “sell.”

With files from reporter David Ebner.

[johnlw]

I guess their plan to reduce spending wasn't well received?

EnCana Corp. plans to invest capital of approximately $5.9-billion (U.S.) in 2007, a 6-per-cent decrease from the prior year, to grow natural gas and oil sands production, and expand the company's downstream heavy oil processing capacity. The company expects to fully finance its capital investment with internally generated cash flow, which is supported by hedges on more than half of its forecasted 2007 production volumes. In 2007, EnCana expects that cash flow will exceed total capital expenditures resulting in free cash flow of approximately $1.7-billion, at the midpoint of cash flow guidance. With the company's 2006 and 2007 planned share purchases, it is expected that 2007 natural gas production per share will grow by 9 per cent and total oil and gas production will grow by 4 per cent per share.

"In this period of high industry activity and continued high inflation, we have tempered our planned natural gas and oil production growth rate in order to minimize the impact of rising costs and operating inefficiencies, and to maximize project returns. Over all, we believe this approach will generate significant free cash flow that can be directed to continued share purchases and increased dividends. As always, our efforts will be focused on increasing the underlying value of every EnCana share," said Randy Eresman, EnCana's president and chief executive officer...........
.Natural gas production, which represents more than 80 per cent of EnCana's production, is expected to increase about 3 per cent, while oil and natural gas liquids (NGLs) production (excluding volumes from the oil sands partnership) is expected to decrease about 5 per cent, mostly due to natural decline in mature properties. Total production in 2007, prior to the allocation of oil sands volumes to ConocoPhillips as part of the heavy oil integration partnership, was expected to be up 4 per cent. With the establishment of the partnership planned for early in 2007, EnCana expects 2007 total production to be about the same as in 2006.

I think they got a downgrade from some outfit in the States?

Glad I wasn't in ECA yesterday.
Things sure went for shit after I left, I hit the road feeling pretty good about my trading positions, sure got knocked down during the day.
Kinda risky not being around the screen during the day I am finding.