Monday, April 19, 2010

EnCana (TSE:ECA) Wishing it Kept Oil Assets?

When EnCana (TSE:ECA) spun off its oil assets last year into a new company named Cenovus Energy (TSE:CVE), it seemed a good move in light of the possibilities natural gas seemed to offer, they may have regrets now as many natural gas companies are adding oil assets to combat what could be an oversupply of natural gas for years head.

Of course the diffentiator for EnCana was its focus on unconventional natural gas, which should give it a cost advantage over its competitors, and hopefully increase revenue, and ultimately profits as a result.

The emerging shale gas play has been somewhat disruptive to that strategy, as the amount of shale gas in the U.S. is so high, it has put downward pressure on natural gas prices, and could for years to come.

Having said that, I do think natural gas will move up in price, even with the large supply. What has been priced into natural gas has been the large quantity available in the market which investors are starting to understand.

Once that is priced in completely, which it may be close to becoming, it seems over time that will change, and natural gas prices will start to edge up along with the share price of the natural gas companies like EnCana.

Long-term, natural gas should be a good play, based on the low cost of entry at this time. The only place it seems it can go is up.

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