EnCana Corp, Canada's second-largest energy company, put a plan to split into two back on track Thursday, less than a year after shelving it, saying it believed financial and commodity markets had recovered to where the move looked attractive again.
The Calgary, Alberta-based firm rekindled its restructuring into separate pure-play natural gas and oil sands producers, a plan that propelled the stock higher when first announced in May 2008 but looked increasingly risky as the credit crunch took hold later in the year. It deferred the split in October.
EnCana said on Thursday its board unanimously voted to move ahead with the split, with the transaction expected to close Nov. 30.
We believe the conditions are now favourable to proceed with the split. Equity and debt markets have improved significantly with debt financing available at reasonable cost. Global and national economic indicators suggest that the world's economies are showing promising signs of recovery, Chief Executive Randy Eresman said in a statement.
The strategic rationale for creating two leading energy companies remains as sound as ever -- the conversion of one leading unconventional resource company into two independent, premium entities unlocks greater long-term shareholder value.
Eresman said when the plan was first announced last year that the market was not affording enough value to the company's various parts, which include one of the largest portfolios of unconventional natural gas in North America and an oil sands production and refining joint venture with ConocoPhillips.
The move should not come as a surprise to investors, but the timing, less than a year after the split was delayed, is unexpected, FirstEnergy Capital Corp analyst William Lacey said.
Oil prices have climbed over $70 a barrel again, but natural gas prices remain well below those of a year ago. Still, EnCana has been protected by its extensive gas price hedging, he said.
EnCana never took this plan apart, they never said they weren't going to do it, they were just delaying it, Lacey said.
So obviously they've got some comfort from their banks, from their lending syndicate, and I think generally people are more optimistic on the economy. If you think that commodity prices have bottomed, or are close to bottoming, then maybe this is positioning at the right time for the recovery.
Lacey also said that with the recent takeover of Petro-Canada by Suncor Energy Inc, EnCana might be seeing more opportunities for increased oil sands spending.
(Reporting by Jeffrey Hodgson and Jeffrey Jones; Editing by Gary Hill)