Canadian energy explorer Encana Corporation ECA announced the closure of its previously declared over-allotment option associated with the 85,616,500 share offering. The company stated that underwriters have fully exercised the over-allotment option of buying 12,842,475 company shares, generating additional funds of about C$187.5 million.
This is in addition to the C$1.25 billion gross proceeds generated by the company through its offering of 85,616,500 common shares. Proceeds from the offering (including the over-allotment option) totaled about C$1.44 billion.
Encana plans to utilize the offering’s net proceeds to lower long-term debt and thereby strengthen its balance sheet. The company plans to redeem offerings of $700 million, due in 2017 and C$750 million, due on Apr 6, 2018.
Encana had signed the offering deal with a syndicate of underwriters including Credit Suisse, RBC Capital Markets and Scotiabank.
Management at Encana added that per its previous guidance, it expects capital spending and dividend payouts to be financed through cash from operations. Funds from this offering add to the company’s financial flexibility.
Encana is a focused pure-play natural gas exploration and production company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays.
In the wake of a weak natural gas and crude pricing environment, the upstream companies are compelled to sell commodities at low prices. Hence, they are unable to improve their balance sheet. Encana too has reported poor earnings numbers, below the Zacks Consensus Estimate in each of the trailing four quarters, which weigh negatively on the stock.
Calgary, Alberta-based Encana currently carries a Zacks Rank #4 (Sell).
Better-ranked players from the energy sector include Western Refining, Inc. WNR, Western Gas Equity Partners, LP WGP and Alon USA Partners, LP ALDW. All these stocks sport a Zacks Rank #1 (Strong Buy).
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