We reaffirmed our Neutral recommendation on natural gas
exploration and production (E&P) company
) on May 2, 2013. Its drilling venture helped Encana deliver
higher oil and liquids production. However, low natural gas
volumes and hedging loss are concerns.
ENCANA CORP (ECA): Free Stock Analysis Report
EPL OIL&GAS INC (EPL): Free Stock Analysis
MCMORAN EXPLOR (MMR): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
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Why the Reiteration?
Encana is one of the largest natural gas companies in North
America with a diverse/high quality portfolio of natural gas
assets spread over Canada and the U.S. This provides the company
with a huge inventory of reserves and a resource base capable of
robust production growth.
Additionally, Encana was one of the first movers in areas like
the Horn River Basin in northeastern British Columbia and the
Haynesville shale in Texas and Louisiana. It has amassed
formidable land positions in both these emerging regions and
others. The company hopes to take advantage of the
lower-than-average reserve decline rates and low-risk drilling
opportunities that have characterized unconventional resource
development across the industry in recent years.
We remain highly optimistic regarding the collaboration of Encana
and Mitsubishi for the development of the Cutbank Ridge, which is
one of the most fertile and low-cost resource rich acreages in
North America. With large proved undeveloped natural gas reserve,
the region is expected to deliver long-term, affordable energy
supplies to domestic and overseas markets.
However, Encana's extensive natural gas exposure raises its
sensitivity to gas price fluctuations, compared to its more
diversified independent peers with higher oil production.
Moreover, with the growing popularity of renewable sources of
energy such as wind and solar, the operators of natural gas
resources are facing tough competition. Although expensive, many
customers are opting for sustainable sources of energy for their
Encana currently holds a Zacks Rank #2 (Buy). Other E&P firms
in the energy sector that are worth considering include
EPL Oil & Gas Inc.
McMoRan Exploration Co.
SM Energy Company
) all holding a Zacks Rank #1 (Strong Buy).