Encana Divests Assets to Eliminate Annual Debts it Creates


Research firm Macquarie Equities Research and investment dealer Raymond James recently weighed in on Encana's (ECA:TSX) divestiture program. They both viewed the plan as a positive for the natural gas producer, allowing capital expenditures and dividends to be paid by cashflow. Raymond James reaffirmed its Outperform rating, and Macquarie maintained its rating of Neutral.

Raymond James states that on September 7, ECA stated it will sell some if its Piceance Basin midstream assets in Colorado to a private midstream company for US$590 million. The assets sold will involve 90,000 horsepower of compression facilities and 260 miles of pipelines, according to Macquarie. The transaction is expected to close in Q4.

Raymond James presented optimistic predictions for Encana, providing a C$31 target price based on a 5.2 times multiple of 2012 expected cash flow and a positive expectation that the company will succeed in covering its 2011 dividends and capital expenditures using cash flow and net dispositions. Macquarie was less optimistic, offering a C$29 target share price based on a 6.4 times multiple of 2012 EV/DACF. The research firm predicted that lower gas prices would require Encana to cut either its capital expenditure program or its divided.