Encana Splits the Company in Two (ECA, COP)

By Douglas A. McIntyre Updated Mar 26, 6:15PM EDT · Published May 12, 7:51AM EDT

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Encana Corporation (NYSE: ECA) has announced that it is splitting the company into two pieces. The plan calls for the company to create an integrated oil company from both upstream and downstream assets, and a natural gas company.

Shareholders will receive one share in each of the new companies in exchange for each share of Encana. The natural gas company is expected to retain the Encana name and the combined dividends of the two companies will be set initially to $1.60 annually, equal to the company’s current payout. Encana plans to complete the split by early 2009.

According to the press release, Encana is taking this action in order to "enhance long-term value for EnCana shareholders by creating two highly sustainable, independent entities, each with an ability to pursue and achieve greater success by employing operational strategies best suited to its unique assets and business plans." Last year Encana signed a deal with ConocoPhillips (NYSE:COP) jointly to develop some oilsands properties and to refine Encana’s bitumen production in the United States. Separately, the company is expanding its oilsands processing capacity from 30,000 b/d to a planned 110,000 b/d by 2012.

In 2007, Encana sold off virtually all its non-North American assets. Its main assets now are 9 billion barrels of bitumen in the Alberta oil sands region, and about 19 TCF of natural gas, mostly coalbed methane. The company’s current president and CEO will head the new natural gas company, and the current CFO will run the integrated oil company.

Encana’s split recognizes reality. The company’s natural gas assets in the U.S. promise to be a growing source of revenue as the price increases for coalbed methane in the Rocky Mountain region. This should be a real moneymaker going forward.

Encana is leaving its integrated oil company with about 2 TCF of natural gas to burn to create steam for the company’s expanding in situ mining operations. That’s smart because it will help insulate the new integrated oil company from natural gas price hikes or shortages. The problems with natural gas supplies and, especially, water are well known in the oil sands region.

All in all, this looks like a good move on Encana’s part. And as we’ve suggested elsewhere, might be something big U.S. oil companies ought to be thinking about. Encana shares are up over 5% pre-market at $90.75; its 52-week trading range was $55.13 to $87.69.

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Paul Ausick
May 12, 2008

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.