Encana (ECA): Raising PT On 6 Catalysts - Nomura
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Nomura Securities analyst, Lloyd Byrne, reiterated his Buy rating on shares of EnCana Corp. (NYSE: ECA) and raised his price target to $15 from $12 for the following 6 reasons:
1) Capital efficiency: Pacesetter well costs continue to decline, improving cash flow and in turn production. In the model, pacesetter well costs are only in the Duvernay due to its immaturity but this seems conservative given recent portfolio-wide improvement and ECA’s commentary on trajectory.
2) Core inventory continues to expand with ECA’s understanding of the reservoir and improving capital efficiency. In the most recent presentation released this week, ECA highlighted 10,000 7,500’ horizontal well locations in the Permian, as compared to 5,000 previously. The market was already moving in this direction given industry corroboration, but it is still additive.
3) ECA confirmed that maintenance capital is now down to $1bn p.a. for the entire corporation. This compares to our prior expectation of ~$1.3bn.
4) Tightening natural gas differentials out of Canada as tariff re-negotiations occur, helping to improve economics in Canada.
5) WPX’s well results in San Juan. In Dec-14, ECA last highlighted its position citing a $45-65/BOE supply cost. Recent well data from WPX suggest 2x ECA’s previous IP30s of 400 to 500 boepd and lower well costs. ECA has 182k net acres in the “oiler part of the basin”. Is this a next play?
6) While “transformation is complete” per management, we suspect Piceance and ultimately Eagle Ford (in our view) could be divested and then reinvested in the core business.
Shares of EnCana Corp. closed at $10.26 yesterday.
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