Encana Corp (ECA.TO)

This company has a balance sheet issue. Shareholders equity at the end of Q2 was $5.3 billion. They have 6.1 billion of debt which should be half of the equity component. They also have a large amount of goodwill on the balance sheet. Their real problem is that they need higher natural gas prices. His guess is that if you see it down a couple of dollars from here in the next few months, it will do a good bounce into 2014 but it needs to see consistent $5-$6 for natural gas prices.

He is a Nat. Gas bull. Thinks it is ready for the next up leg. Thinks ECA-T is where the money will go, as opposed to peers.

(Market Call Minute) Likes it.

(A Top Pick August 3/12. Down 14.1%.) Has a new CEO. Natural gas prices have dropped precipitously since last year but, this is the 3^rd largest natural gas producer in North America. Have cleverly hedged 75% of their production at well over $4. Also, instituted cost cuts of about $100 million per year. 9% of their production is in more oily names, which generates 30% of cash flow. Still likes.

Sustainability of the dividend depends on the price of natural gas, which is once again showing quite a bit of weakness. They will be very reluctant to cut the dividend but if gas prices stay low for any extended period of time, they may not have a choice. If you are in this for anything other than a potential recovery in the gas price, he wouldn’t be there. If you want to be in here based on natural gas, wait until natural gas starts recovering.

(Market Call Minute.) Just bought this. Trading at a cheap level relative to its peers. Thinks it will get re-rated.

He would be buying natural gas names but this is not the one he would be buying. Beat on their last quarter but liquids production was below consensus. Have a strategic review underway with the new CEO. Inventories are in line with the 5-year averages.

Just reported earnings and beat on the cash flow side. A lot of it was one-time items giving them a tax break. A little behind on production. They zigged when the rest of the world zagged. Put all their focus on dry gas production and then the bottom fell out of the gas market. They are now sort of turning the ship around and are about 2% liquids over a year ago and are going to be 7%-14% in the next 2 or 3 years. He is waiting to see what the new strategy is going to be which should come by the end of the year.

(Market Call Minute.) Likes natural gas well enough but much prefers Paramount Resources (POU-T).

We’ve seen investors shunning Nat Gas stocks. But this is the third largest producer and has exposure in the key emerging plays. They have a new CEO and thinks he will be very focused on the efficient allocation of capital in that organization to more profitable plays in the short run.

This one has languished. Seasonality for natural gas is September 6 to December 21.

Has been a very, very disappointing stock in a segment of the oil/gas industry that has actually been performing quite well. They are trying to refocus the company in producing a higher proportion of oil and getting away from the pure natural gas story. The problem is that the free cash flow is not there to support continued good dividends. He has avoided the stock.

(A Top Pick Aug 9/12. Down 17.22%.) Natural gas is actually positive on the year at about 8%-9% but this company has gone through quite a bit of shift in terms of management which probably held back the stock a bit. They are also hedging their natural gas pricing which hasn’t helped. Healthy dividend of about 4.7%.

Brought on a new CEO and management picture is a clear one. Should see a firm strategic direction for the company in the next couple of months. They are pursuing a more liquids rich strategy. He is a believer in Nat Gas over the next 12 months so this is one you want to buy.

The new CEO was a positive development. He worked for BP for a number of years. This name is tempting but there are a lot of issues under the hood. They put on a lot more hedges in the last quarter than many expected. He has been on the sidelines for Nat Gas plays and the CEO doesn’t make him want to get in yet. He prefers more high quality Nat Gas plays. Prefers TET-T and TOU-T