Encana (ECA) Affiliate To Divest DJ Basin Asset By July End

Encana Corporation (NYSE:ECA) declared that its wholly owned affiliate – Encana Oil & Gas (USA) Inc – will likely divest its oil and gas resources in Denver Julesburg (DJ) Basin to Crestone Peak Resources by July end. It is to be noted that 95% of Crestone is held by the Canada Pension Plan Investment Board. The remaining 5% is owned by The Broe Group, a private equity firm in Denver.

Last October, Encana entered into a deal to sell DJ basin resources – spread over roughly 51,000 net acres – to Crestone for a total consideration of $900 million. At that time, Encana added that the proceeds from the divestment will primarily be utilized for strengthening its balance sheet mainly by reducing debt.

Investors should note that the Colorado asset divestment is in line with management’s plan of streamlining its portfolio. In other words, the DJ asset sale reflects that the company’s management has not been shy of disposing assets, particularly those that do not fit its long-term growth plan.

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Encana, based in Calgary, Alberta, is a focused pure-play natural gas exploration and production company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays. This provides the company with a low-risk, long-life and sustainable growth profile.

However, Encana's large exposure to natural gas remains a key area of concern as the commodity’s price is still languishing below the key psychological level of $3 per MMBtu.

As a result, Encana currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the energy sector include McDermott International Inc. (NYSE:MDR) , Enbridge Inc. (NYSE:ENB) and North Atlantic Drilling Limited (NYSE:NADL) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).