EnCana Split Good News for Credit-Strapped Businesses

Last Updated Sep 14, 2009 10:54 AM EDT

The resurrection of EnCana's plan to split into two independent energy companies offers some heartening fodder for credit-strapped businesses. It also provides a positive outlook -- at least from the company's head honchos -- on natural gas prices.

EnCana announced last year intentions to divide the company into two, primarily along its operational lines -- natural gas and its oil and refining businesses. The collapse of the financial markets put more than a crimp in EnCana's plans and by October 2008 the company had delayed its reorganization.

EnCana then spent the remainder of 2008 and the first two quarters of 2009 preparing for the eventual split of the companies. EnCana reduced its debt by 19 percent to $8.2 billion since it first announced its plans back in May 2008.

The decision to move forward provides some proof that credit markets, which have been inaccessible for most companies in the past, is starting to open up.

EnCana will be a natural gas company focused on developing its shale and other gas resource plays across North America. Cenovus Energy will be an integrated oil company focused on the development of assets in the Canadian oil sands.

Cenovus was able to obtain $3 billion non-revolving, 364-day, bridge financing from RBC Capital Marketsto partially fund the $3.5 billion to be paid to EnCana to acquire the assets.

Cenovus' first objective will be focus on developing its bitumen resources, which has the opportunity for double-digit growth, Brian Ferguson, EnCana's chief financial officer and designated president and CEO of Cenovus said during a conference call last week.

Cenovus will likely sell off its non-core assets in its first couple of years as a standalone company. Ferguson said it could sell up to $500 million in assets a year.

EnCana's executives also indicated that natural gas prices appear to be bottoming out.

The company has managed to protect itself from low natural gas prices by hedging about 50 percent of its expected natural gas production at a little more than $6 (billion cubic feet per day) through the end of October next year.

"Although we believe that we are likely near the bottom of the market, we expect to continue to see pricing softness through the remainder of the year and going into 2010," Randy Eresman, president and CEO of EnCana said during the conference call.

He added: "Recognizing that North America natural gas is both abundant and more affordable due to the emergence of shale plays, we are now forecasting our long term New York Mercantile Exchange natural gas price in the $6 to $7 range."