There have been crazier deals - ECA has about 3 billion in cash on balance sheet and pays about 470 million each year in dividents, this might be the time to buy while it is on sale, A big player with relatively low debt could pay 30 per share (about 22 billion)minus the cash (about 3 billion) and a year's divident (589 million) and the net/net to the potential buyer is 18.5 billion assuming they have room in their finances to absorb the ECA debt. A massive resource on sale thanks to the low nat gas prices with potential to produce a lot of wet gas and oil. I have seen crazier deals, I don't know what role the Canadian Gov't would play if a run was made at ECA.....
I understand ECA is now at 15 years low, and with a 4.00% dividend yield it seems to be a great buy-and-hold candidate. However, looking at the fundamentals, the numbers seem to tell a different story. Be very careful, high yield = high risk. 1) PE ratio is way out of wack, 56.30. 2) Price/Book ratio and ROE does not indicate that price is cheap. 3) EPS of 0.35 can hardly pay for the dividend of 0.80. 4) Total Debt of 8.65B is over 2 times the Operating cash flow. 5) Profit Margin and Operating Margin are in single digit which gives doubts on how long they can continue to pay the dividends given this drag out low margin gas prices. 6) The only saving grace is that the price is currently trading below the book value. 7) Any one question why Insiders and Institutions have not been buying this low price stock,if it is so good? Just wondering.
What's wrong? They are a gas company. They sell a product into a flooded, constraind market at a price lower than their cost to produce. Their motto is "sure we are losing $0.05 per MCF, but we will make it up on volume" Before someone replies that their operating cost is the lowest in the industry, that was before they sold off their Midstream assets. Look for processing fees to be included in the next quarterly report.
Obviously they will be stressed if nat gas prices stay low forever.
But they have lots of flexibility now.
1. They have 2.0 BCF/day for all of 2012 hedged at over $5.
2. They are doing more drilling in liquids rich areas and developing those as resource plays. Deep Montney, Duvernay shale, DJ Niobrara, Piceance Niobrara, Collingswood in MI, etc).
3. They have a prime low cost early mover position in the tuscaloosa marine shale (OIL - 300,000 acres) and have one well with 5000 foot lateral (weyerhiuaser 1H) that had IP of over 800 bopd and two wells with 7000 foot laterals with results any day.
4.They have stake in Kitimat LNG export facility and are lining up a JV for billions of dollars that will support drilling capex and ensure higher prices on some of that gas. That might happen any day.
5. Deep panuke comes on line - that has been an expense without revenue for a long time. Expenses now drop mightily and revenue from 200-300 MMCF/day comes on line, supplying NE US, a lot of it contracted.
6. Land holding not just extensive, really amazing.
ECA right now my BEST idea - I am grateful for low price so I can add to my long term core position.