Upstream energy operator, Encana Corp. (ECA) declared that it is planning to issue 52,000,000 common shares in the initial public offering (IPO) of PrairieSky Royalty Ltd., reflecting an increase from its previous plan to offer 32,500,000 common shares. PrairieSky will be the newly formed company, after Encana spins off its gas and oil resources in Western Canada. Post separation, Encana will remain the parent company of PrairieSky with 75% ownership.
Being Canada’s largest natural gas producer, Encana’s profits were impacted negatively by a fall in natural gas prices in the recent past that made the company restructure its asset base with a focus on oil-producing resources. The spin-off plan corroborates this shift, as the properties in Western Canada primarily produce natural gas.
Encana added that the per share offer price band has been augmented to C$26.50−C$28.00 from the earlier disclosed price range of C$23.00−C$26.50. Most importantly, roughly C$1.46-billion worth PrairieSky IPO will likely be one of the largest public offerings in Canada by value.
However, all the plans related to the offering depend on regulatory approvals. Encana is anticipated to make the final decision on the price and size of the offering by the end of May.
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.
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 look at other Zacks Rank #1 players in the same industry such as Athlon Energy Inc. (ATHL), Ultra Petroleum Corp. (UPL) and Clayton Williams Energy Inc. (CWEI).
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