October 15, 2008 / 11:31 AM / 10 years ago

UPDATE 5-EnCana split derailed by global credit crunch

* Delays split into independent oil, gas companies

* Says too much uncertainty in global markets

* Cash flow, production in line with previous outlook (Adds details on share buyback in final paragraphs. In U.S. dollars unless noted)

By Scott Haggett and Scott Anderson

TORONTO/CALGARY, Alberta , Oct 15 (Reuters) - EnCana Corp (ECA.TO) said on Wednesday that global market turmoil has forced it to delay plans to split into natural gas and oil sands arms and that it would wait until markets calm before revisiting the idea.

The company, Canada’s biggest independent oil and gas producer, added the credit crunch, which has cut the price of oil by nearly half since its July peak, has not yet dramatically cut its production or cash flow, which remain within the company’s 2008 targets.

EnCana had expected the split to take effect early next year, following a shareholder vote set for mid-December.

It reaffirmed the timetable just last week. when some analysts questioned the rationale for the move, arguing that raising capital would be more expensive for smaller companies and both could be takeover targets.

“The cost of capital has risen across the board so it doesn’t make sense,” said Phillip Skolnick, an analyst with Genuity Capital Markets. “Why go out there and risk the credit markets right now? You split it up and you create parts that are very susceptible to take out as well.”

EnCana announced its split in May, saying it wanted to create focused companies that would be more attractive to investors. The plan helped push its shares as high as C$97.41 in June. The shares dropped C$6.50, or 13 percent, to C$44.30 on the Toronto Stock Exchange on Wednesday as crude prices plunged.

Following the split, EnCana would have kept most of its natural gas production while smaller spinoff, recently dubbed Cenovus Energy, would have run its oil sands and refining joint venture with ConocoPhillips (COP.N) and some of its Western Canadian conventional gas production.

It said on Wednesday it still hopes to complete the split but does not know when the plan will again be viable.

“We cannot predict when the appropriate financial and market conditions will return,” Randy Eresman, EnCana’s chief executive, said in a statement. “But EnCana will be prepared to advance the proposed transaction when it determines that the market conditions are appropriate.” CAUTIOUS OUTLOOK

The company, which will release its third-quarter results on Oct. 23, also said its cash flow and natural gas and oil production were in line with its previous 2008 outlook.

However it cautioned that both net debt-to-capitalization and net debt-to-adjusted-EBITDA would be at the lower end of the target range.

In July, the company increased its forecast for 2008 cash flow by about 7 percent to as much as $11 billion as its gas business exceeded its projections.

EnCana said that over the next year it has a substantial portion of expected future production hedged at strong prices, including 2.5 billion cubic feet per day — about 60 percent of current production — hedged at an average price of $9.15 per thousand cubic feet.

However, the company warned that its capital plans for 2009 may be more tightfisted than the $6.9 billion it expected to spend this year because of the credit crunch and falling commodity prices.

“We are working on our 2009 budget plans, taking a measured approach that is appropriate for current economic conditions,” Eresman’s statement said. “In addition to adhering to our long-standing practice of maintaining capital discipline, we will be even more focused on capital preservation in these uncertain times.”

The company said it has $2.7 billion in available credit facilities and can easily repay $450 million of bonds that come due over the next two years.

It also said it has not yet decided if it will resume a stock buyback program halted when it announced the split in May.

The company has regulatory approval to repurchase up to 10 percent of its outstanding stock, allowing it to buy back about 75 million of its own shares. Before the halt was announced, it had repurchased about 4.8 million shares, Alan Boras, a company spokesman said. ($1=$1.19 Canadian) (Editing by Peter Galloway)

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