Encana’s U.S. ‘baggage’ will preclude takeover: analyst
Calgary natural gas producer doesn't fit West Coast consolidation theme
There’s been some speculation that Exxon Mobil Corp., after plunking down $3.1 billion for Celtic Exploration Ltd. last week, still has money to burn.
One name that’s been suggested as a main dish follow-up to last week’s appetizer is Encana Corp.
Although shares of the Calgary-based natural gas and liquids producer slipped today after initially enjoying a lift from Exxon’s decision to buy Celtic, it continues to be the subject of persistent takeover rumors.
Kevin Kaiser of Connecticut-based Hedgeye Risk Management told Bloomberg last week that Encana is a natural target for Exxon.
“There’s some sort of larger strategy at work here because Celtic’s assets are right in the heart of Encana’s Canadian natural gas assets,” the Calgary Herald quoted him as saying.
Encana does hold a significant position in Alberta’s Duvernay shale – the largest, according to energy consultancy Wood Mackenzie, with two-thirds of its acreage in the play’s liquids-rich gas window.
But that alone doesn’t make it a suitable target, especially if Exxon wants to lock up resources for future exports of liquefied natural gas, according to Sanford C. Bernstein’s Bob Brackett, who has a neutral market perform rating on Encana at $19.
Encana’s portfolio includes a lot of “baggage” in the U.S. that doesn’t fit the West Coast consolidation theme, he told clients in a note last week.
“As such, we believe further acquisitions of Western Canadian pure-plays, in addition to players with exposure to low-cost U.S. basins such as the Marcellus, remain more likely than an Encana takeover,” the senior research analyst wrote.
“To be sure, ECA will be able to extract value by [striking joint ventures] or selling portions of its Canadian assets in the coming few quarters, but we believe the recent Celtic deal has caused expectations to overshoot reality.”