Imperial Capital Starts EnCana Corp. (ECA) at In-Line

Imperial Capital initiates coverage on EnCana Corp. (NYSE: ECA) with a In-Line rating and a price target of $14.00.

Analyst Bob Christensen commented, "In 2014, ECA spent $10bn on two major transactions in key U.S. crude oil plays and did so in when oil prices were averaging $95/bbl (WTI). We believe these large, top of market purchases will likely weigh heavily on its future results and finances until world oil prices reach above $60/bbl (WTI). On 9/29/14, ECA purchased Athlon Energy for $7.1bn. Athlon is a mid-sized company with a large leasehold position in the oil-rich Midland Basin in Texas with significant opportunities for horizontal oil drilling in its rich multi-horizon “stacked-pay” formations. About of half the positions bought were in the most prolific northern part of the basin; the rest were good properties on the edges in the northern part of the basin. On 5/7/14, ECA purchased the Eagle Ford shale oil properties of Freeport-McMoRan for $2.9bn. These properties were good, but not great, and slightly outside the core of that play."

He added, "Our In-Line rating on ECA primarily relates to our concerns that ECA is now saddled with a high-cost basis in these oil-centric properties and that it will have to invest in them heavily initially, in order to test them, to hold leases, and to attempt to work costs down all the while consuming liquidity. We also think well-cost savings and improving operations, a hallmark of ECA, may not be enough to overcome sub-$60/bbl (WTI) oil prices."

For an analyst ratings summary and ratings history on EnCana Corp. click here. For more ratings news on EnCana Corp. click here.

Shares of EnCana Corp. closed at $11.25 yesterday.

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