On May 22, 2014, Encana Corp. (ECA) – an upstream energy operator − declared that it will price 52,000,000 common shares at C$28.00 per stock, during the initial public offering of (IPO) of PrairieSky Royalty Ltd. The offering will likely be concluded by May 29, but awaits regulatory approvals.
From the offering, Encana is expected to receive gross proceeds of roughly C$1.46 billion. Encana, which will have a 60% ownership in PrairieSky, has sanctioned a 30-day option to the underwriters for buying an additional 7.8 million shares in case of over-allotment. If the option is fully exercised, the gross proceeds of Encana will rise to C$1.67 billion from C$1.46 billion.
A weak natural gas pricing environment in the past has severely affected Encana’s profits. This led Encana to spin off its natural gas resources in Western Canada and form the independent PrairieSky Royalty Ltd.
Based in Calgary, Alberta, Encana is the second largest gas producer in North America and holds a highly competitive land and resource position in several 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.
We also appreciate Encana’s strategy of disposing assets that do not fit into its long-term growth plan. The company’s divesture program includes the disposition of high cost yet low profit generating assets and a focus on asset base expansion that would render high returns. The net proceeds received from these property sales also render financial flexibility to the company.
As a result, Encana currently carries a Zacks Rank #1 (Strong Buy), implying that it is expected to significantly outperform the broader U.S. equity market over the next one to three months.
One can also consider other players in the energy sector like Athlon Energy Inc. (ATHL), Matrix Service Company (MTRX) and Pembina Pipeline Corp. (PBA). All these stocks also sport a Zacks Rank #1.