Encana Corp (USA) (NYSE:ECA) is getting gutted after announcing its intent to sell 107 million shares in a secondary offering, for which ECA will earn about $1 billion. That puts the per-share price at about $9.35.
Part of the deal allows the underwriters — Credit Suisse and JPMorgan Chase — to buy 16.05 million more shares.
On CNBC, Jim Cramer described the proceeds from the sale as a “blank check,” wondering just what the company plans to do with all that extra money.
Many energy firms have sold shares to fund drilling operations as the price of crude oil stabilizes.
It appears Encana will do the same, as the company reportedly plans to use half of that billion it makes from the secondary offering to pay off debt and fund its 2017 capital program. The bulk of it will go to ramping up production in the Permian Basin, which is the largest oil field in the States.
The market responded by sending ECA stock down about 5% as of this writing, while Scotia Group downgraded Encana shares from “sector perform” to “underperform.”
Now, out of the 26 analysts covering ECA stock, nine rate it a “buy” or better, while 17 recommend holding or reducing positions. Even after today’s 6% decline, however, ECA stock remains in the black for the year, with gains of 80%-plus.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
