EnCana Corp. (ECA): 2008 budget and gas production guidance in-line with expectations - Goldman Sachs - December 12, 2007
News
EnCana today released its 2008 capital budget and operating guidance.
Analysis
EnCana's 2008 outlook was generally in line with our expectations. Management expects 2008 natural gas production of 3.78 Bcf/d, in line with our estimate of 3.79 Bcf/d. Non-oil sands liquids production is expected to be 98 Mb/d, lower than our estimate of 105 Mb/d. Upstream oil sands production is also lower than expected. As a result, EnCana's total 2008 company production guidance of 4.57 Bcfe/d is below our estimate of 4.75 Bcfe/d. We would note that EnCana plans to divest about $500 million of assets in 2008, some of which are likely to be producing properties. EnCana's capital budget of $6.9 billion is essentially in line with our $7.0 billion forecast. EnCana announced a doubling of its dividend to $1.60 per share for 2008, implying a 2.4% yield versus the current share price. This yield is competitive with super-cap integrated oils, a group with which we believe EnCana would like to be compared for valuation purposes.
Implications
Our target price for EnCana shares is unchanged, though our EPS estimates are under review. Similar to 2007, in which EnCana has outperformed in our view because of very strong execution, we believe management's ability to deliver on its guidance will be the key driver of EnCana shares in 2008. We would note an emerging trend among Canadian heavy oil producers of lower than expected 2008 production volume guidance, which has been the case for Canadian Natural Resources, Nexen, and now also EnCana though for the latter is a less important part of the portfolio. We continue to rate EnCana Sell due to what we believe is a too-high implied E&P valuation for the company's gas business versus other large-cap E&Ps. |
