Analysis: Clock ticking for Canada's natural gas champion

Thu Sep 15, 2011 3:38pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Encana Corp Chief Executive Randy Eresman did exactly what investors wanted when he created the quintessential pure play in North American natural gas. That's now his biggest problem.

The outlook for gas prices has darkened, due in part to success Encana and its peers have had unlocking vast shale reserves close to major markets, and that has forced Eresman to revise his game plan frequently.

Canada's biggest gas producer has clawed back its long-term production target, put assets on the block and now looks poised to 2012 chop spending to keep already-high debt from getting out of hand. Its share price has fallen in response.

Now some investors wonder how long the company, designed to squeeze increasing volumes of gas out of stubborn rocks, can meet its initial promise.

"My view on Encana is that they're running out of room," said Jim Hall, chairman of Mawer Investment Management Ltd, which holds more than 700,000 Encana shares, according to Thomson Reuters data.

"Their balance sheet can't withstand gas prices at these levels forever and their asset sales reflect this reality. The assets themselves will be fine but it's an open question as to whether Encana will still own them when the gas price eventually moves higher."

Encana reinvented itself as a pure gas play with the spinoff of its oil sands assets into Cenovus Energy Inc in late 2009. Now a proxy for the gas industry, it produces the fuel at fields stretching from Louisiana to northern British Columbia.

It is a big promoter of expanding gas use into export and transport, and has mounted a campaign to impress upon the public that it is protecting ground water as controversy over hydraulic fracturing - the method used to extract gas from shale - has flared.   Continued...

<p>Randy Eresman, president and CEO of Encana, addresses shareholders at the company's annual general meeting in Calgary, Alberta, April 20, 2011. REUTERS/Todd Korol</p>