Canadian energy explorer Encana Corporation ECA has signed a deal with a syndicate of underwriters that includes Credit Suisse, RBC Capital Markets and Scotiabank.
Per the agreement, the underwriters are expected to buy 85,616,500 common shares of the natural gas exploration and production player at C$14.60 per share price. Encana will likely get C$1.25 billion gross proceeds from the offering – anticipated to be closed by Mar 16, 2015.
Additionally, the underwriters also have an overallotment option to procure an extra 12,842,475 company shares. Encana added that if the option is fully exercised, then the gross proceeds will increase to C$1.44 billion.
Encana is expected to utilize the offering’s net proceeds for lowering its long-term debt and thereby will strengthen its balance sheet.
In the wake of a weak natural gas and crude pricing environment, the upstream companies are compelled to sell the commodities at low prices and hence are unable to improve the balance sheet. Hence, Encana finds the share offering to be suitable to raise funds for improving liquidity.
Last month, Encana reported weaker-than-expected fourth-quarter 2014 earnings. The company announced operating earnings per share of 5 cents, which was substantially below the Zacks Consensus Estimate of 20 cents and the year-ago level of 31 cents. This was owing to lower natural gas volumes and reduced commodity realizations. (Read our blog: Encana (ECA) Lags on Q4 Earnings, Lowers 2015 Capex.)
Encana carries a Zacks Rank #4 (Sell), implying that the stock will underperform the broader U.S. equity market over the next one to three months.
Meanwhile, better-ranked players in the energy space like VTTI Energy Partners L.P. VTTI, Western Gas Equity Partners L.P. WGP and Valero Energy Partners L.P. VLP sport a Zacks Rank #1 (Strong Buy).
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