Weathering the storm

Encana’s Prairie Sky IPO almost a year ago raised an initial C$1.46 billion, followed by C$2.6 billion in a secondary offering last September

Gary Park

Petroleum News

Encana and Cenovus Energy, once the core components of the same company until they split six years ago, are taking decisive steps to ride out the current commodity price slump that is acting as a drag on their share values.

In the past year, Encana, which is turning the clock back to add oil to its natural gas production, has seen its shares drop by 32 percent, while oil sands operator Cenovus has experienced a 24 percent decline.

Not that observers are reaching for the panic button.

David Meats, an analyst with Morningstar, said Encana has the cleanest balance sheet in Canada’s exploration and production sector and is strongly placed to ride out the current storm.

A share offering by Cenovus in February raised only C$1.5 billion to pay for its 2015 capital spending program, leaving investors disappointed.

Mohit Bhardwaj, an analyst with Citigroup Global Markets, suggested Cenovus should have done an initial public offering of some assets, especially given the valuation of PrairieSky Royalty, a spinoff of Encana royalty lands in Western Canada, but others would prefer to see a share dilution.

Cenovus responded to the urgings on April 23 when it hired bankers to explore the possible sale or an IPO of its royalty holdings, which RBC Capital Markets analyst Shailender Randhawa estimates could fetch as much as C$1.6 billion.

Encana’s Prairie Sky IPO almost a year ago raised an initial C$1.46 billion, followed by C$2.6 billion in a secondary offering last September.

Cenovus has 3.1 million net acres of royalty lands that produce 7,600 barrels a day and yield C$150 million of pretax operating cash flow a year, Randhawa said, suggesting potential buyers include PrairieSky, Freehold Royalties or mining royalty firm Franco-Nevada, along with pension plans or private equity partners.

She said that “if you own land, it’s a real estate/finance company. It’s hard to lose a dollar.”

Penn West Petroleum recently sold royalty lands to Freehold Royalties for C$321 million, while Canadian Natural Resources said it may sell or spin off its own royalty lands, which have been valued at C$2.5 billion.

Encana is continuing on the sales path, announcing April 20 that it is seeking buyers for natural gas properties in Louisiana as it concentrates on drilling for oil and natural gas liquids in the Eagle Ford and Permian plays of Texas and the Montney and Duvernay basins Canada.

Citigroup has been hired to solicit offers for Encana’s Haynesville Shale basin acreage, valued at US$1 billion, although Encana has declined to comment. The first of those leases, which cover more than 350,000 acres, was acquired in 2005.

Earlier in April, Encana sold some gas-gathering assets in Canada for C$461 million to Veresen Midstream.