EnCana delays split into 2 companies due to financial markets

EnCana Corp. has suspended a plan to split into two independent energy companies until stability returns to chaotic financial markets — confirming rumours that the restructuring was in doubt.

Shares in the Calgary-based firm closed down $6.50, or 12.8 per cent, to $44.30 on the TSX, about half of what they traded at after the proposed split was announced in May and before oil and gas prices plunged.

The company said in a statement Wednesday that given the "uncertainty and volatility in the global financial markets," it is choosing to delay the timing of a shareholder vote — originally set for mid-December — "until clear signs of stabilization return to the financial markets."

The restructuring, which was supposed to have taken place in early 2009, would have seen the company's oilsands assets spun off into a new integrated oil company called Cenovus, with EnCana continuing on as a pure-play natural gas producer.

CEO Randy Eresman said the underlying reasons for splitting off the integrated oil operations are still valid.

"However, there is currently too much uncertainty in the global debt and equity markets to proceed with external approvals at this time," Eresman stated. "We cannot predict when the appropriate financial and market conditions will return, but EnCana will be prepared to advance the proposed transaction when it determines that the market conditions are appropriate."

Taking a measured approach 

There were murmurs in the oil patch late last week that EnCana was thinking about deferring its split.

EnCana, which reports its third-quarter results on Oct. 23, said its cash flow and production "are in line with 2008 guidance," and its debt ratios are "at the lower end of the target range."

"We are working on our 2009 budget plans, taking a measured approach that is appropriate for current economic conditions," Eresman said. "In addition to adhering to our long-standing practice of maintaining capital discipline, we will be even more focused on capital preservation in these uncertain times."

UBS Investment Research analyst Andrew Potter said Wednesday's announcement was disappointing, but does not come as a surprise, given recent market upheaval.

"Once markets improve, we believe ECA will move quickly to complete the transaction," he wrote in a research note. "The postponement of ECA's restructuring has nothing to do with its existing capital position; rather it is related primarily to the mechanics of transferring debt to Cenovus."