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Encana (ECA) to Vend San Juan Assets, Optimize Portfolio

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Encana Corporation (ECA - Free Report) recently clinched a $480-million (or C$615 million) deal to offload its San Juan assets located in New Mexico. The Canadian upstream player will sell the assets to DJR Energy, LLC, which is a private Denver-based exploration and production company created in 2017. Per the deal, Encana will vend 182,000 net acres, which accounted for 5,400 barrels of oil equivalent per day (72.2% liquids) of average production in 2017. Subject to satisfactory closing conditions, the transaction is scheduled for closure in the fourth quarter of 2018.

The deal will give a boost to DJR Energy’s portfolio, positioning it as one of the leading players of San Juan Basin. The agreement will expand its acreage in San Juan to more than 350,000 net acres, thereby increasing its output to more than 6,000 barrels per day.

Coming to Encana, the deal will advance the firm’s strategy to concentrate on its four core basins, namely Montney and Duvernay gas formations in British Columbia and Alberta, and the Permian and Eagle Ford shale plays in Texas. The transaction will streamline the company’s portfolio through the sale of non-core assets and help it to refocus its production spending in core plays and fewer geographical areas.

Since a couple of years, Encana has successfully repositioned its asset base through a slew of acquisitions and divestitures. Last year, the company jettisoned its Piceance Basin assets for $735 million in a bid to strengthen financials and deepen its focus on the four key shale plays.

Importantly, a favorable shift in Encana’s product mix from natural gas to crude bodes well for the company on the back of oil price rally. Driven by higher year-over-year liquids production and prices, it delivered better-than-expected results in the last reported quarter.

Encana’s successful cost-reduction initiatives are also commendable. To its credit, the company has been able to achieve a substantive decline in the operating cost structure. As a result, Encana's operating margins have gone up around 39% year over year in the first half of 2018.

The increased guidance of the company has further buoyed optimism surrounding the stock. Its total output is expected to grow 30% on a year-over-year basis in 2018. Especially, Montney's liquid production is expected to come in at around 65,000 barrels per day in the fourth quarter of 2018, recording significant growth from the current output of more than 45,000 barrels per day.

Importantly, the company is targeting production growth of 60% from its core assets through 2021, while being within its cash flows. The management team also expects the company’s cash flow to soar about 300%, with margins doubling over the next five years.

Notably, shares of Encana have increased 15% over a year against the industry’s growth of 3.2%.

 



While Encana carries a Zacks Rank #3 (Hold), investors interested in the energy space can invest in some better-ranked stocks like Oasis Midstream Partners LP (OMP - Free Report) , Northern Oil and Gas, Inc. (NOG - Free Report) , and Petrobras (PBR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Oasis Midstream Partners’ bottom line for 2018 is expected to surge more than 300% year over year.

Northern Oil and Gas’ 2018 earnings are anticipated to grow 292.9%.

Petrobras’ 2018 earnings are likely to grow 134.3% on a year-over-year basis.

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