ECA looks again at breakup plan on credit markets
EnCana revisting bust up plans
Andrew Willis, today at 11:46 AM EDT
EnCana is revisiting plans to split into two companies, as Canada's largest energy company struggles to get favourable financing terms for its two offspring.
EnCana executives are out canvassing banks this month, attempting to nail down loan packages that will support the two units that will be born from a break-up of the parent. EnCana announced plans in May to morph into an unconventional natural gas company and an energy company that is focused on the Canadian oil sands.
Talks with lenders are playing out against brutal credit markets, and sources say EnCana executives are growing increasingly concerned that two smaller energy plays will end up facing a much higher cost of capital than a single larger entity. Borrowing costs are an major challenge for the oild sands unit, recently christened Cenovus Energy, which will need project financing and other loans to bring oil sands properties on line.
EnCana boasted a $75-billion market capitalization in the June, just after it announced plans to split. It is now a $35-billion company.
“If they choose to delay the split, it would simply be a reflection of what's happened in credit markets, not the underlying wisdom of the strategy,” said one banker who works with EnCana.
There is a tight timeline for a decision. EnCana could pull the plug, or delay the move, by the end of October. Oil company executives expects to hear back from potential lenders to the two units by the end of the month.
If EnCana can get loans on attractive terms, it would lay out its planned financial structure for shareholders as part of a “plan of arrangement” on the restructuring that is scheduled to be mailed by mid-November. EnCana shareholders are then expected to vote on the bust-up in mid-December.
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