This Natural Gas Stock Is Quickly Purging Assets
Encana (NYSE: ECA) is sticking to its pledge to divest $2 billion in assets by the end of the year. The company announced last week that it was selling its properties in North Texas to EnerVest for $975 million. This is the third recent divestiture for the Canadian company, coming on the heels of a $590 million sale of midstream assets in Colorado and $220 million sale of a gas plant in British Columbia. Encana's recent asset purge is something worth considering in light of the rest of the natural gas industry.
The beginning
Encana shed its oil business in 2009, aiming to focus solely on natural gas. Seemingly minutes later, production boomed, prices plummeted, and the company was forced to scale back growth and shed assets.
Many companies that drill for gas also drill for oil. The process uses the same equipment, allowing these outfits to move from one lucrative drilling region to the next, regardless of the commodity. Take a look at how big a role natural gas production plays among the largest U.S. gas producers.
Company | Total Production (MMcfe/day) | U.S. Natural Gas as % of Total Production | |
|---|---|---|---|
1 | ExxonMobil (NYSE: XOM) | 26,376 | 14.50% |
2 | Chesapeake Energy (NYSE: CHK) | 3,049 | 84.50% |
3 | Anadarko | 4,110 | 56.60% |
4 | Devon Energy (NYSE: DVN) | 3,960 | 51.20% |
5 | Encana | 3,395 | 54.90% |
6 | BP (NYSE: BP) | 20,598 | 8.90% |
7 | ConocoPhillips (NYSE: COP) | 9,840 | 16.80% |
8 | Southwestern Energy | 1,364 | 98.70% |
9 | Chevron (NYSE: CVX) | 16,140 | 8.00% |
Source: Company statements.
The companies above that allow natural gas to dominate production must actively pursue NGLs while the price of methane remains depressed.
Methane is so last year
The shift away from methane production has already begun in some regions. The North Texas assets Encana sold were dry gas assets in the Barnett Shale play, an area that many producers have begun to abandon for the oil and natural gas liquid rich properties in other parts of Texas. As of the middle of October, there were only 53 active rigs drilling in the Barnett; numbers have been that low since 2004. Conversely, there were 395 rigs drilling in the Permian basin in West Texas and 195 rigs in the Eagle Ford field in the southern part of the state.
Foolish takeaway
Encana managed a good third quarter on the strength of increased production and emphasis on NGLs. Though the company is still one of the more debt-burdened of the Calgary gas producers, Encana has intimated that its 2012 budget will allow it to live within its means and be limited to cash flow and dividends -- music to investors' ears.
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