Canada’s largest natural gas producer Encana Corporation (ECA) recently entered into an agreement with Pivotal LNG, a subsidiary of AGL Resources Inc. (AGL), to receive supply of liquefied natural gas (LNG), which will be distributed to service providers operating fleet trucks in the Haynesville shale play in Louisiana. The financial terms of the deal were not disclosed.
Per the terms of the deal, Pivotal LNG will deliver up to 100,000 gallons of LNG per day over an initial time period of five years to Encana who will make the product available via mobile as well as permanent public fueling stations.
With this transaction, Encana Natural Gas – the subsidiary through which the deal was executed – will have a steady supply of LNG for its new fuelling stations over the long term. Encana remains highly upbeat about its association with AGL Resources, a company operating LNG facilities for over 30 years, and believes that the collaboration will stimulate the use of natural gas as a medium of transportation fuel.
Headquartered in Calgary, Alberta, Encana holds a highly competitive land and resource position in a number of North America’s most promising shale and tight gas resource plays rending the company a low risk, long-life, and sustainable growth profile.
EnCana’s prolific gas resource plays include Coalbed methane (CBM) in central and southern Alberta, Bighorn Deep Basin in western Alberta, Cutbank Ridge and Greater Sierra in British Columbia, Jonah in Wyoming, Piceance in Colorado, the Barnett shale play in Fort Worth, and Bossier in east Texas.
In order to mitigate the risks of a fluctuating natural gas environment, EnCana has hedged approximately 50% of expected 2011 natural gas production at attractive prices. This lowers the company’s near-term commodity-price exposure and provides greater visibility to future cash flow generation, a key positive for EnCana’s risk profile.
However, EnCana’s lack of commodity and geographic diversification of assets will likely hamper its performance amid a low natural gas price scenario. We also remain apprehensive about the company’s high capital spending target, which might result in an increased debt level. Hence, we maintain a long-term Neutral recommendation on the stock, supported by a Zacks #3 Rank (short-term Hold rating).
AGL RESOURCES (AGL): Free Stock Analysis Report
ENCANA CORP (ECA): Free Stock Analysis Report
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