Nothing to stop ECA from falling another $3, and with very bearish inventory numbers coming out on Wed and Thurs, this week is going to get worse for Encana holders. I see it breaking below $62 Cdn, perhaps as low as $58 in the next few weeks if the weather continues to be way above normal temps. With the CDN dollar weakening as the BOC stops their interest rate hike campaign, ECA is a cinch to drop below $50 US.
Please forgive me if I have done something to give rise to this apparent hostility you have directed my way.
As I have said before, and nothing has changed, I do not work for ECA. If it makes you feel better you can call me Gwyn Morgan himself. Whatever I post can always be traced back to information in the public domain, or represents my opinion based on experience and is usually portrayed as such.
I agree with you, and have stated as much, that without weather related demand the energy commodities are likely headed lower over the coming months. I gather you are a trader. I thought I had offered a reasoned position why, in the face of lower commodity prices ECA was one of the companies with the least downside and CNQ was one of the companies with the greatest downside. I made the same case to coralreef5 a couple of months ago. Whereas coral was concerned about the future for E&Ps and insisted on shorting ECA, I suggested that if the climate was ripe for shorting, then CNQ was a much better candidate. If it is all about making money (and I don't believe it is) I would note that thus far shorting (or buying puts on) CNQ would have made you much more money than doing the same with ECA.
You call my position rhetoric - if you have issues please be specific and I will try and expand. My position was simply offered for traders like yourself to consider. IMO, CNQ is in a much more precarious position to weather soft commodity prices than ECA.
To add to what I have argued before note relative decline rates for their portfolio of assets. ECA, in embracing a strategy focused on resource plays, is actually lowering decline rates into the mid to high teens. CNQ, in acquiring assets like Ladyfern, and in increasing production in plays like the ones acquired in the Petrovera acquisition without similar increases in reserve is facing accelerating decline rates comprable to those in the rest of the industry (mid 20s). If cash flow is impaired because of low commodity prices and drilling needs to be pared back who do you think will take the biggest hit to production?
When I see people justifying the price for CNQ it is typically based on multiples of cash flow or earnings. These are the metrics that will be most affected by a decrease in commodity prices. When I see people justify the price of ECA it is typically based on NAV arguments using commodity price deck assumptions tied to a WTI price in the mid to high 20 dollar range. For the last several months ECA has looked much more attractive than CNQ based on NAV. The type of commodity correction we are talking about does not change typical commodity price assumptions used to calculate NAV. It does, however, have an immediate impact on cashflow and earnings. Based on the preceding, and my previous posts I am guessing that if we are headed for a period of weak commodity prices it might be best to short (or by puts) on CNQ rather than ECA.
This is simply my take. I would love to hear a reasoned position for doing the reverse. As much as I like Tom Petty, quoting him does little to advance the collective knowledge of the board. You strike me as someone who has more than a passing knowledge of the industry. If I have offended you by posting something that I thought added to you post please spend sometime letting me know why. I don't mind being called an idiot if someone can then explain why I ma an idiot. What we do not need on this board is another shrill.
Well, from $57.43 I'd say we're most of the way there to $50, so the prediction is going well so far. No one wanted to be caught going into tommorow with ECA stock, quite a drop at the end. Drop will continue tommorow morning, and accelerate after the NG report.
very true, $5 NG is extremely profitable.
FWIW, I believe I heard either on a DVN or an ECA call that the BE extraction cost across all platforms is just under $22.
Let's also keep in mind that $40-$50 oil is here to stay. In global real currency terms, everyone other than the U.S is paying for $30 oil right now. This is due to the 35% beating the USD has taken.
As an aside, does anyone own any ECA debt? convertibles or otherwise?
No doubt, FrozenGeers empassioned defence of the company he works for is quite noble. However, as I read his brilliant rhetoric, I have to admit I'm distracted by a song I can't quite get out of my head: Tom Petty song, um, you know this one: Yeah I'm Free....Free Falling. I keep hearing it in the background, which really distracts me from all of Geers accurate portrayal of how great his company is.
I agree that without weather related demand the next several weeks could be tenuous. The beauty about ECA however is they are opportune in taking advantage of short term pain for long term gain. Witness the cash they are sitting on with the recent divestiture and there stated intention to buy back shares and decrease leverage of their balance sheet. The long term picture for ECA is all the brighter because of these periods of weakness.
Contrast ECA to CNQ. CNQ has been paying up for flowing barrels while short changing RLI in hopes of augmenting short term cash flow in support of Horizon. Although I believe they did purchase some puts on production to protect extreme downside, a sustained downturn in commodities could prove ugly for CNQ.
Yeah. What is Encana's debt level again? I would think a sustained drop in the price of commodities would be pretty hurtful there too. Not that its going to happen. However NG is going to take an ugly beating for the next several months, and ECA will be fully exposed to that. Plus half of their worldwide oil production is in a country where they are in contract dispute with the government. If you want to talk hypothetical, that could turn out ugly. Either way, ECA and CNQ will be higher next year than this year. However I believe ECA will take some lumps this winter before they get there. I've been right so far, let's see if I continue to be.