Energy Stocks on Activist Investors’ Hit Lists: EnCana (ECA)
Canadian natural gas superstar EnCana (ECA) spun off its heavy oil division at absolutely the wrong time. The original plan was that by placing all of oil assets into Cenovus Energy (CVE), ECA would be a pure play on rising natural gas prices.
Unfortunately, fracking made fools of us all and prices for the fuel went south in a hurry. That caused EnCana to stumble badly, and activist investors started to crowd.
Moody’s estimates ECA to be a future activist target as it isn’t growing its liquids portfolio as fast as its rivals. ECA’s latest capex budget should have the firm producing roughly 30% more oil and natural gas this year. Sadly, that 75,000 barrels of oil equivalent (BoE) or so isn’t really anything when you consider EnCana’s large size.
This poor liquids growth is strike one against the energy firm.
The second strike is that ECA’s capex spending is aligned with cash flows. That means there isn’t much left over for investors. That’s evident by EnCana’s recent dividend cut from 20 cents quarterly to 7 cents. The yield now sits around 1.3%, where it had been roughly 4% before.
ECA might feel pressured to begin selling off natural gas properties in an effort to improve its production mix. But, that could boost ECA stock down the line.