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WIKI ANALYSIS
Encana (NYSE:ECA) engages in the the production of natural gas from natural gas formations, including tight gas, shales and coal bed methane (CBM). [1] The companies segments are divided into two geographic regions: a Canadian Division and a USA Division. Relatively low natural gas prices have had a significant impact on earnings while also limiting EnCana's capital expenditures as will as its expansion plans.[2] In addition, the company engages in unconventional gas production, which is facing regulatory scrutiny in North America.[3]
Business Growth
Revenue growth can be partially attributed to acquisitions of various North American land and properties in 2010.[4] However, a weak natural gas pricing environment has partially offset Encana's expansions by reducing revenues, profitability, and overall return on production.[5] In 2010, Encana reported annual net income of $1.5 billion on $8.8 billion in revenues, representing a 19.4% decline on net income and a 20% decline in revenue.[6]
Trends and Forces
Weak natural gas prices and supply glut reduce Encana's return on production
Natural gas future prices have averaged approximately $4.2 per million BMU over the first months of 2011.[7] Since 2008, prices have declined by 52% due to high supply and relatively low demand in North America. Encana's operations are very concentrated on natural gas production, and its profitability and revenues have decline in a directionally consistent manner with natural gas prices.[8]
In response to a weak environment, Encana's management is curtailing capital expenditures in an effort to reduce costs.[9] To further support its growth, Encana has sought to engage in partnerships to develop and finance its properties.[10] However, these partnerships and other forms of external financing have the potential of making Encana dependent on these sources to fund acquisitions. In addition, partnerships and other asset sales have reduced the company's portfolio of natural gas properties significantly.[11]
Energy Demand from Overseas has of potential of driving future natural gas demand in North America
As several Asian and South America economies growth, their demand for energy in the form of coal, natural gas, and oil expand as well.[12] Because natural gas provides an environmentally "cleaner" alternative to coal, the economies of China, India, and Brazil are projected to require substantial amounts of natural gas in the future.[13] Many of these countries have substantial resources. The U.S. Energy Information Administration estimates that China has 1.28 quadrillion cubic feet of technically recoverable shale-gas resources, among the most in the world. While China is drafting plans to develop its shale-gas reserves, many Chinese energy companies like PetroChina Company (PTR) are seeking to partner with North American gas producers to secure future supplies.[14]
For producers like Encana, these partnerships have the potential of providing the financing necessary to grow their businesses and develop their currently owned fields. Other Asian companies like Petroliam Nasional Bhd, Barrick Gold Corp (TSE:ABX), and Korea Gas Corp (SEO:A036460) have also sought energy and mineral deals with North American companies.[15] However, these deals are not a sure thing, even after the partnership has been signed. In 2011, PetroChina Company (PTR) ended a $5.5 billion deal with Encana.[16]
Competition
Encana's competitors are independent oil and gas producers in North America. Because weak gas prices have reduced the revenues and capital expenditures of many of its competitors, several US and Canadian companies are seeking to strike deals with a limited number of Oil & Gas Majors or foreign companies in order to finance their expansions.[17]
In Canada, Encana competes with
In the US, Encana competes with
- EOG Resources (EOG)
- Venoco (VQ)
- Cabot Oil & Gas (COG)
- Comstock Resources (CRK)
- Anadarko Petroleum (APC)
References
- ↑ Reuters: Encana Corp Company Profile as of June 2011
- ↑ Reuters: Encana Corp Company Profile as of June 2011
- ↑ Reuters: Encana Corp Company Profile as of June 2011
- ↑ Morningstar.com: Company Overview and Financials, June 2011
- ↑ Morningstar.com: Company Overview and Financials, June 2011
- ↑ Morningstar.com: Company Overview and Financials, June 2011
- ↑ Encana Investor Relations: 2010 Annual Report
- ↑ Encana Investor Relations: 2010 Annual Report
- ↑ Encana Investor Relations: 2010 Annual Report
- ↑ Encana Investor Relations: 2010 Annual Report
- ↑ Encana Investor Relations: 2010 Annual Report
- ↑ San Francisco Chronicle:Encana Faces Slower Growth Without Partner on Shale-Gas Output, June 2011
- ↑ San Francisco Chronicle:Encana Faces Slower Growth Without Partner on Shale-Gas Output, June 2011
- ↑ San Francisco Chronicle:Encana Faces Slower Growth Without Partner on Shale-Gas Output, June 2011
- ↑ San Francisco Chronicle:Encana Faces Slower Growth Without Partner on Shale-Gas Output, June 2011
- ↑ San Francisco Chronicle:Encana Faces Slower Growth Without Partner on Shale-Gas Output, June 2011
- ↑ Bloomberg: Canada's oil deal falling most since 2003 as crude rallies, June 2011
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