Encana Corp (ECA.TO)

Not one of his favourites. Has been somewhat negative on the gas side of the business, but that has improved significantly. There are other gassy stocks that he would rather have. They are restructuring, and have made some big acquisitions in the US. Looking to have a greater focus on liquids, which is where you make money in the business. 1.2% yield.

Spun off PrairieSky Royalty (PSK-T) which was 5.2 million acres, and its Fee Simple property, which means you own the property, but you did not own what was below ground level, so they still owned below ground level. Have no intention of doing anything with the property. Companies are now going to come along and pay to explore, and if they find oil and gas, Encana will get some of the royalties. On top of that, he is a big fan of the Eagleford shale in the US where they own 45,000 acres. This is the property that is putting the US into the realm of being the world’s top oil producer by 2015.

Spun out Prairie Sky and the success has been far above what anyone expected. Outlook for Nat Gas pricing is bullish. CEO has done a good job of selling off non-core assets. Brought down debt to cash flow significantly. Street is slow to recognize improvements in the business model.

Feels they have done a lot of smart things recently. Deleveraging for one thing. Also, the IPO of PrairieSky Royalty (PSK-T), which went extremely well, raised more money than they thought it would. A great company, and very well run. Not as much growth as some of the smaller names in the area, so he doesn’t own this. If you own, you could continue to hold over the next couple of years. Most of the gas producers are very, very profitable at these levels. (See Top Picks.)

Shares up significantly since IPO. For Encana, significant value has been unlocked. For a shareholder you are not necessarily going to see any of that. Leverage is coming down and that is another piece of the puzzle where it de-levers its balance sheet.

Thinks they are doing a fantastic job at structuring this company. Thinks there is a lot of upside. He is looking to get back in.

$23.82 is his model price, so it is overvalued by 4.5%. The energy patch over the last few months has been very, very good. With its spinoff of PrairieSky (PSK-T), the price will go up according to his model price. There is no gap in value that he usually sees, but will probably go up in value.

PrairieSky is a spinoff into a new royalty trust, and is to be public very soon. The royalty concept is that you own the property, and if someone wants to drill it and they find something you get a piece of it. They have a lot of properties to be drilled, and there could be lots of people looking for drilling locations.

Has been sort of semi-negative on gas oriented stocks. The spinoff of PrairieSky is a good move. They are going to get mileage out of those properties. At the same time, he sees the gas side as improving. Storage has been run down to record low levels. He doubts if they will ever get back to the kind of surpluses they had a couple of years ago. To him, this probably means that $4+ gas is probably in the cards.

Spinning off Prairie Sky which is likely to do well. Indications are that investors are very interested in this. A high quality asset, where it doesn’t have a lot of sustaining capital expenditures. This is a royalty on all the lands that Encana owns outright and doesn’t have to pay royalties. The gas market, which was moribund 2 years ago, is looking much healthier. Prairie Sky will be able to sell the rights to drill on their lands and collect royalties on production. If you are somewhat bullish on natural gas prices over the next 3-5 years, you might do fairly well. Would be a little cautious on the price as it is very well subscribed. If you are an Encana shareholder, you will still benefit from this. Has a new CEO who is slimming down the company. Natural gas prices have been doing much better over the last 1-1.5 years and analysts’ coverage has become much more positive.

Likes it. Has been saying to buy it below $19 and he has sold already. It broke out of a trading range and as it pulls back near previous resistance you want to own it. Decent dividend.

Has been a great turnaround story. They have been doing and saying all the right things. They are getting more into the liquefied Nat Gas. Would not be surprised if they have some consecutive beats although he can’t comment on tomorrow’s results.

(A Top Pick April 26/13. Up 38.48%.) This continues to surprise people, almost daily. First of all there is the sale of Prairie Sky and the next thing you know they are buying $3.1 billion worth of assets in the Eagleford. Very smart operators. Primarily gas, but are diversifying more into oil and liquids.

(Top Pick Jan 14/13, Up 40.44%) Likes the strategy with the deal announced today. This deal makes a lot of sense for them. Their balance sheet is a lot better than back then.

Likes the Canadian natural gas sector generally. This stock has done extremely well, a lot of it on anticipation of valuation to be and we don’t know what that will be. In the short term, he feels it is fully valued.