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Encana Completes San Juan Asset Sale, Optimizes Portfolio

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Encana Corporation recently completed the divestment of its San Juan assets located in New Mexico to DJR Energy, LLC, which is a private Denver-based exploration and production company created in 2017. Per the deal, Encana vended 182,000 net acres, which accounted for 5,400 barrels of oil equivalent per day (72.2% liquids) of average production in 2017.

The proceeds from the $480-million divestment are expected to increase the company’s financial strength. This will, in turn, enable it to stay on track with its $1.25-billion worth share repurchase program in 2019.

In early November, Encana agreed to acquire Newfield Exploration Company through a transaction valued at $5.5 billion. The deal is expected to complete in first-quarter 2019, following which, the company plans to increase dividend payment by 25%. The proceeds from San Juan asset divestment are expected to support Encana in its plan to increase dividend payment. Currently, the company pays a dividend of 6 cents per share on an annualized basis.

Moreover, the deal advances the firm’s strategy to concentrate on its four core basins, namely Montney and Duvernay gas formations in British Columbia and Alberta, as well as the Permian and Eagle Ford shale plays in Texas. The transaction is in line with the company’s strategy of streamlining its portfolio through the sale of non-core assets, which can help it to focus its production spending on 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.

Price Performance

Encana has lost 56.3% in the past year compared with 44.3% collective decline of the industry it belongs to.

Zacks Rank and Stocks to Consider

Encana currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

Calgary, Canada-based Gran Tierra Energy Inc. (GTE - Free Report) is an international oil and gas exploration and production company. Its bottom line for 2018 is expected to surge more than 300% year over year. The company delivered a positive average earnings surprise of 24% in the trailing four quarters. The stock currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Obsidian Energy Ltd. (OBE - Free Report) is also a Calgary, Canada-based exploration and production company. Its bottom line for 2019 is expected to surge more than 80% year over year. The company currently has a Zacks Rank #2 (Buy).

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