The Motley Fool

Encana’s New Strategy Unveiled

Encana has finally announced their new strategy, and management believes it will result in a 10% CAGR in cash flows from now to 2017.  Let’s take a look at Encana’s plan to get back to being a profitable, growing company with a clear and sustainable business model.

Dividend Cut

Not surprisingly, Encana announced that the dividend will be reduced dramatically in order to keep it in line with cash flow generated.  The new dividend is $0.28/sh, down 65% from the previous dividend of $0.80/sh.  Encana’s new dividend yield is 1.5%. The market was expecting this dividend cut.  And it was necessary.

More Focused Capital investment

Capital spending for 2014 will be $2.5 billion versus $2.7 to $2.9 billion this year and $3.5 billion in 2012.  This reflects a more focused spend on 5 key areas; namely the Montney, Duvernay, DJ Basin, San Juan Basin, and Tuscaloosa Marine Shale.  These are large, complex resource plays that offer Encana the scale to drive down costs and achieve higher returns.  This is a significant narrowing of focus, as Encana was previously funding about 30 different plays.

Diversify Production

Encana intends to continue to diversify its production profile by continuing to grow its liquids production.  In fact, Encana anticipates that by 2017, 75% of its cash flow will be generated from its liquids production.  And Encana will retain significant high quality natural gas resource options, which leaves it well positioned to benefit from a natural gas price recovery, if and when that happens.

Capital Efficiencies and Lowering Cost Structure

Encana’s focus on capital efficiencies and lowering cost structures has already shown results in Q3, with $110 million in cost savings achieved.  At mid-year, management was saying that they had already identified $200 million in cost savings.

In 2014, the company will consolidate its office locations to Calgary and Denver, resulting in the closure of its Texas office and 20% reduction of its workforce.


Encana plans to unlock value through divestitures and an IPO of its Clearwater mineral fee title lands      and associated royalty interests.

Bottom Line

Encana’s new strategy has so far been well received by the market, as the stock was up over 3% after the announcement was made.  With a more focused capital spending program, increased focus on driving efficiencies, and a renewed focus on shareholder value, it looks like Encana has begun to emerge from the doghouse.

More expert advice

Encana remains a heavy-weight in Canada’s energy sector.  For a profile of 5 more of Canada’s corporate power houses and what they can do for your portfolio, click here now and download our special FREE report.  One of the company’s profiled was recently taken out at a big premium!  Find out what might be in store for the remaining 4 by simply clicking here.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Karen Thomas owns shares of Encana.  The Motley Fool has no positions in the stocks mentioned above at this time.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.