EnCana Corporation (ECA) proceeds with its plan to split into two independent energy companies – one focused on natural gas and the other on integrated oil businesses. The natural gas-focused company and the integrated oil company will be named EnCana (GasCo) and Cenovus Energy Inc., respectively. This is a tax-free transaction from both the corporate and shareholder perspectives.
EnCana (GasCo) will look after the lucrative portfolio of prolific shale and other gas resource plays across the North America, while Cenovus Energy Inc. will have the oil production and refinery business. The transaction is expected to close on November 30.
EnCana had originally proposed the corporate reorganization in May 2008. Due to the high level of overall market uncertainty, the company had delayed the plan. The company believes that the conditions are now favorable to proceed with and the Board of Directors of EnCana has also unanimously approved the plan. Under the proposed plan, EnCana common shareholders will retain their EnCana shares and receive one Cenovus common share for each EnCana share held.
With this split, each management team will focus more directly on the critical success factors in its respective businesses. In 2009, Cenovus assets are expected to produce net oil equivalent production of 248,000 barrels per day and gas business of EnCana (GasCo) may grow at double-digit rates. EnCana’s immense inventory of undeveloped acreage and the very low dry-hole risk associated with unconventional resource development gives it considerable control over its rate of growth.
We particularly like the company’s balanced portfolio of resource plays, disciplined approach to capital investments, low-cost operating structure and solid balance sheet. We believe that EnCana’s proven track record of low-cost natural gas and oil production, strong hedging position, growth in proved reserves, along with this spin-off will definitely unlock the value for shareholders.
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