Embed Size (px)
Citation preview
Canadian Oil and Gas
Presented by: Haosen Liang
Sandy Sanjoto
Alice Liang Yu Tai
Ben Yee
Presentation Overview
Industry Analysis
Imperial Oil
Suncor Energy
Encana Corporation
Agenda
Canada’s Place in the World
Underlying Product
Industry Components
Importance of Technology
SWOT Analysis
Recommendation
Top Ten World Natural Gas Producers in 2004
Top 10 World Crude Oil Producers in 2004
Oil and Gas Re-investment Cycle($ Cdn for 2003-2005)
What is the underlying product?
Fossil sediments trapped in in the pores of
rocks
Hydrocarbons CH4 (methane), C3H8
(propane), C4H10 (butane) C7H16 through C11H24
(gasoline and diesel) Lubricating and Heavy gas oils
Types and Uses Crude Oil and Natural Gas
Uses: Mobility, heat and cool our homes and provide electricity
Products: plastics, life-saving medications, clothing, cosmetics, and many other
items you may use daily
Barrel – a unit of measure for oil and petroleum products that is equivalent to 42 U.S. gallons ~ 159 Litres
Proven Natural Gas Reserves
Western Canadian Natural Gas Resources
Canadian Oil Production Outlook
Big Players’ Production
Conventional Oil vs. Oil SandsConventional Oil
Petroleum found in liquid form, flowing naturally or capable of being pumped without further processing or dilution
Light crude oil Cheaper to produce
Oil Sands Synthetic Crude Oil Oil Sands is a thick mixture of sands, bitumen, mineral rich
clays and water Synthetic crude oil is extracted from oil sands and it is often
sold at a premium because of its high quality More costly to produce
Types of Crude Oil Produced in Canada
• Condensates: hydrocarbons recovered from a natural gas reservoir.
• Light crude oil: liquid petroleum with a gravity of 28°API or higher
• Heavy crude oil: liquid petroleum with a gravity below 28°API
• Bitumen: petroleum in semi-solid or solid form that is found in bituminous sands. It is so heavy (gravity below 12°API) and viscous that it will not flow unless heated or diluted.
• Synthetic crude oil: a product similar to a high-quality light crude oil. It is made by refining or upgrading heavy oil or bitumen. From 31-33°API
• Pentanes: hydrocarbons containing molecules of 5 carbon atoms and 12 hydrogen atoms.
Industry Components
Upstream Exploration and Production Seismic Survey
Midstream Pipeline, Transportation and Storage
Downstream Refining, Marketing and Retailing
Extraction
1.Natural Gas Wells are drilled and gas flows under its own
pressure ~ 90% methane Needs processing to remove impurities
2. Drilling: Conventional crude oil that is near the surface
can pumped up using traditional techniques
Oil Sands Composition
Synthetic Crude Production Process
Ore Preparation Strip-Mining
The pick and shovel method used to recover oil sands that are near surface
600,000 barrels per day 1.2m barrels per day in 2010 In Situ
Includes various methods used to recover deeply buried bitumen deposits, including steam injection, solvent injection and firefloods
380,000 barrels per day 700,000 barrels per day in 2010 More than 80% of the Oil Sands reserve require this method
Extraction Separates Bitumen from other molecules
Upgrading Processes Bitumen into Synthetic Crude Oil and Vacuum Gas Oil
In-situ Production
SAGD: Steam Assisted Gravity Drainage Because of the rising price
s of natural gas, crude producers are moving towards using bitumen or high sulphur fuels to generate steam
80% of bitumen extraction relies on this method
Harvesting Bitumen
Oil Refining
1. Fractional Distillation ~ boil and cool2. Conversion ~ chemicals3. Treatment ~ impurities4. Recombination ~ octane ratings
Importance of Technology
Correlation between Oil and Natural Gas Prices
Oil Sands Production TechnologiesAlternates to Natural Gas
Toe-to-Heel Air Injection
Oil Sands Supply Costs by Recovery Type
Heavy Oil Economics (US$ per barrel)
Strengths
Canada is the world leader of Enhanced recovery techniques for mature reservoirs Cold climate and offshore production Gas processing, sulphur extraction and heavy oil upgrading Oil Sands reserve Development of Oil Sand projects
Integrated with the world’s largest market for energy consumption, making it less costly to bring the products to market.
Strong interest from China, the largest market for energy consumption in the future.
Attractive crown royalty rate for oil sand projects
Weakness - Regulatory Approval
Weaknesses
Limited natural gas reserves Capacity for natural gas is forecasted to decrease Canada is one of the high-cost places in the world to find
and produce oil and gas Deep gas, natural gas from coal and developments
offshore, in the oil sands and the North are large, complex and expensive and have long lead times before they turn a profit
Challenges in meeting North America’s energy needs
Opportunities
Exporting to the US
Oils Sands
Exploration of Northern and Eastern Canada
World population is currently around 6 billion people, but is expected to grow to approximately 7.6 billion by 2020. - a huge increase in the demand for transportation fuels, electricity, and many other consumer products made from oil and natural gas.
Opportunities - Markets
Expanding markets in U.S. and Asia
Threats
Tighter environmental and security regulations Kyoto Protocol
Limited proven natural gas reserve
Long run viability of oil sands project It is estimated that crude price has to be above $30 a barrel for
oil sand projects to be profitable because of the high production costs
Increasing Supply costs
Important Trends
Higher oil sands production/declining conventional oil production
Share of gas production increasingly coming from sour and unconventional gas (e.g., coalbed methane)
Average drilling density increasing and competition for the land base escalating
Average finding and development costs spiraling upwards
Greater North American market interdependence
Recommended Strategy
Selection Criteria for Long Term Investment
Larger companies with strong financial resources
Companies that have good access to resources and (potential) markets
Companies that already demonstrate superior cost structure and lower production costs
Imperial Oil Limited
Agenda
Company Background
Management & Business Strategy
Business Segments
Risks and Challenges
Financial Information by Segments
Agenda (Cont)
Financial Statements
Valuation Ratios
Stock Prices and Charts
Discounted Cash Flow Model
Conclusion & Recommendation
Company Background
Incorporated in 1880 with HQ in Calgary, Alberta
Largest integrated oil company in Canada
Stock Exchanges: AMEX (IMO-A), TSE (IMO-T)
Market Cap: 37.187 Billion (As of March 10, 2006)
Share Price: $111.80 CAD (As of March 10, 2006)
Company Background (Cont)
Proposed three-for-one stock split on Feb 2, 2006
Relationship with Exxon Mobil Corporation
Exxon Mobil owns 69.6% of the company Abundant access to technologies, leverage, and
research globally Imperial Oil and Exxon Mobil have agreed to operate
their Western Canada production together as of April 1, 2005
Management & Business Strategy
T.J. (Tim) Hearn: Chairman, president and CEO
R.L. (Randy) Broiles: Senior VP, resources division
P.A. (Paul) Smith: Controller and senior VP, finance and administration
Enhances shareholder value through the Consistent Management Approach
Management & Business Strategy
Sustained emphasis on 4 corporate priorities:
Operational excellence
Growing profitable sales volume
Achieving and maintaining a best-in-class cost structure
Improving the productivity of the asset mix
Business Segments
Three business segments:
Natural Resources (Upstream)
Petroleum Products (Downstream)
Chemicals
Natural Resources Conventional Oil and Gas
Norman Wells in Northwest Territories West Pembina in Alberta Wizard Lake
Oil Sands - Cold Lake in Alberta
Tar Sands - Syncrude in Alberta
Exploration and Development Mackenzie Delta
Major Oil Sands Deposits
Oil Sands – Cold Lake Operations
Imperial Oil owns 78,000 hectares of oil sands
Cold Lake is the second largest thermal heavy-oil operations in the world
Development drilling program and research
Increasing royalties to be paid to government
Oil Sands – Cold Lake Operations
Oil Sands – Cold Lake Operations
Tar Sands – Syncrude Operations
Tar Sands – Syncrude Operations
Located near Fort McMurray, Alberta
The single largest crude oil producer in Canada
Three main activities: recover shallow deposits of tar sands using open-pit mining methods, extraction of crude bitumen, and production of synthetic crude oil
Recent investment in expansions (Aurora)
Exploration and Development - Mackenzie Delta Development of 3 natura
l gas fields: Taglu, Parsons Lake, and Niglintgak
Shared project with ConocoPhillips, Shell Canada, Exxon Mobil, and the Aboriginal Pipeline Group
Petroleum Products
Four refineries: Sarnia, Strathcona, Darmouth, and Nanticoke
Nation-wide distribution system with 30 primary terminals
Petroleum Products
Markets over 700 petroleum products throughout Canada
Distributed and marketed through over 2000 Esso stations, 100 commercial facilities, and 3 urban home heating operations
650 Esso convenience and 400 sites with car washing facilities
Chemicals Largest market share for rotational modeling pol
yethylene applications and second largest market share for injection modeling applications in North America
Major operations located in Sarnia, Ontario
Risks and Challenges
Volatility of oil and natural gas prices
Intense competition
Environmental regulations
Need to replace reserves
Risks and Challenges
Earnings Sensitivity
Financial Information by Segments
Financials - Income Statement
Financials - Income Statement
Financials - Balance Sheet
Financials - Balance Sheet
Financials - Cash Flow Statement
Financials - Cash Flow Statement
Valuation Ratios
Imperial Oil 2005 2004 2003 Industry
Price/Earnings 15.1 12.37 12.56 8.40
Price/Book 5.77 3.85 3.75 3.00
Net Profit Margin 9.22% 9.14% 8.88% 6.40%
Dividend Yield 0.81% 1.24% 1.51% 2.46%
ROE 39.20% 32.46% 30.75% 20.70%
EPS 7.62 5.75 4.58 N/A
Annual Growth 62.20% 23.67% 28.31% N/A
1 Year Stock Price vs. S&P Energy
5 Year Stock Price vs. S&P Energy
Discounted Cash Flow Model
Gordon Growth Model k = 0.0387 g = 0.0289 P = Div/(k-g) = 0.94/(0.0387-0.0289) = $95.92
IMO is overvalued slightly compared with its current stock price
Conclusion & Recommendation
Leader in market with low risk
Sustainable growth
High ROE
Strong dividend and repurchase record Recommendation: BUY
Suncor Energy
Agenda
Company Background Management Team Integrated Strategy
Oil Sands Natural Gas Refining and Marketing – Canada Refining and Marketing – US
Analysis on Suncor’s Consolidated Financial Statements Stock Information as of March 10, 2006 Recommendation
About Suncor An integrated energy company
Strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oils sands
Pioneering the industry in 1967 and became a publicly traded company in 1992
The core oil sands business is supported by conventional natural gas production in Western Canada and downstream refining, marketing and retail businesses in Ontario and Colorado
Significant progress since 1992: Daily oil sands production has more than tripled One of the lowest cost producers in North America Growth in market capitalization ($1 billion to more than $19 billion at the end of
2004)
Corporate Committee
Richard George – President & CEO since 1991 Kenneth Alley – Senior VP & CFO since 2003 (join Suncor in 1984) Mike Ashar – Executive VP, Refining and Marketing since 2003
(join Suncor in 1987) David Byler – Executive VP, Natural Gas & Renewable Energy since 2000
(join Suncor in 1979) Terry Hopwood – Senior VP & General Council since 2002
(join Suncor in 1988) Sue Lee – Senior VP, HR & Communications since 1996 Jay Thornton – Senior VP, Business Integration Kevin Nabholz – Senior VP, Major projects since 2002
(join Suncor in 1986) Steven Williams – Executive VP Oil Sands since 2003 (join Suncor in 2002) Thomas Ryley – Executive VP, Energy Marketing & Refining
(join Suncor in 1983)
Integrated Strategy
4 major business divisions:
1. Oil Sands 2. Natural Gas and Renewa
ble Energy – produce in Western Canada
3. Energy Marketing and Refining – Ontario
4. Refining and Marketing – Colorado
Integrated Strategy
With a high quality resource base that it is estimated to contain the raw materials to produce a potential 11 billion barrels of conventional crude oil, Suncor doesn’t need to look for new oil reservoirs. Instead it can focus on developing the technology and expertise to produce higher value crude oil products, increase production and improve operational flexibility.
Integrated Strategy
Oil Sands
Located near Fort McMurray, Alberta Recovers bitumen through mining and in-situ development
and upgrades it into refinery feedstock, diesel fuel and by products.
The foundation of Suncor’s growth strategy and represents the most significant portion of the company’s assets.
Suncor pioneered the world’s first commercially successful oil sands operation in 1967 and today, with total production nearing the one billion barrel mark and enough reserves to sustain production for the next 50 years, the company remains a leader in oil sands development.
Oil Sands
Natural Gas
Primarily produces conventional natural gas in Western Canada
Serves as a price hedge that provides the company with a degree of protection from volatile market prices of natural gas purchased for internal consumption.
To ensure natural gas production keeps pace with company-wide natural gas purchases, NG is targeting production increases of 3% to 5% per year.
Natural Gas Production
Marketing and Refining - Cad Operates a 70,000 barrel per day (bpd) capacity refinery in Sarnia,
Ontario
Markets refined products to industrial, wholesale and commercial customers primarily in Ontario and Quebec
Markets products to retail customers in Ontario through its Sunoco-branded and joint-venture operated service networks
Encompasses third-party energy marketing and trading activities, as well as providing marketing services for the sale of crude oil and natural gas from the Oil Sands and NG operations.
Outlook & Risk/Success Factors Outlook:
Construction on a diesel desulphurization project at the Sarnia refinery to meet current and anticipated federal sulphur regulations.
Construction of a planned ethanol plant is expected to begin in 2005 and be completed by 2006, subject to regulatory approvals. This facility is expected to produce ethanol at a for blending into Sunoco-branded and Suncor joint-venture retail gasolines.
As a result of the fire incident, M&R may be required to purchase additional synthetic crude oil feedstock to meet demand, resulting in higher purchased product costs.
Risk/Success Factors Affecting Performance:
Fluctuations in demand and supply for refined products, margin and price volatility. The risk of cost overruns for the execution of capital projects. Numerous risks and uncertainties that could affect construction schedules of the dies
el desulphurization project.
Refining and Marketing - US
Downstream assets based in Denver, Colorado (acquired in August 2003) This acquisition is part of an integration strategy aimed at
improving access to the North American energy markets through acquisitions, long-term contracts and possible joint-ventures.
Operates a 60,000 barrel per day (bpd) capacity refinery
Markets refined products to customers primarily in Colorado, including retail marketing through 43 Phillips 66-branded retail stations in the Denver area.
Outlook & Risk/Success Factors Outlook:
Approximately $260m on new capital project Spend $29 million by 2006 to meet existing obligations between the refinery and the United
States Environmental Protection Agency and the State of Colorado. 42-day scheduled maintenance is planned for pipeline and refinery equipment. R&M’s existing four-year contract with the local Paper, Allied-Industrial Chemical and Energy
Workers International Union, which applies to hourly wage employees at the refinery, will expire in January 2006.
Risk/Success Factors Affecting Performance:
Fluctuations in demand for refined products, margin and price volatility and market competitiveness
The risks associated with the execution of the fuels desulphurization project Numerous risks and uncertainties can affect construction schedules A weaker Canadian dollar would result in a higher funding requirement for U.S. capital
programs.
Outlook & Risk/Success Factors Outlook:
Approximately $260m on new capital project Spend $29 million by 2006 to meet existing obligations between the refinery and the United
States Environmental Protection Agency and the State of Colorado. 42-day scheduled maintenance is planned for pipeline and refinery equipment. R&M’s existing four-year contract with the local Paper, Allied-Industrial Chemical and Energy
Workers International Union, which applies to hourly wage employees at the refinery, will expire in January 2006.
Risk/Success Factors Affecting Performance:
Fluctuations in demand for refined products, margin and price volatility and market competitiveness
The risks associated with the execution of the fuels desulphurization project Numerous risks and uncertainties can affect construction schedules A weaker Canadian dollar would result in a higher funding requirement for U.S. capital
programs.
2005 - Promised and Delivered
Recovered from the challenging fire damage at the start of the year, which lowered production capacity from 225,000 to 171,000 hence higher production cost per barrel
All recovery is on schedule and completed in September and full production capacity recovered.
At the mean time able to control our net debt to cash flow ratio of only 1.2, despite a 2.9 billion recover expenditure on the fire recovery
Commissioned a 450 million expansion, bringing production capacity up by 15% to 260,000 barrels per day
Acquired Valero Energy Corporation, and became the largest refining operation in the U.S Rockies area
Continued to improve energy efficiency, greenhouse effect offset and new, renewable energy projects.
Risk/Success Factors
Commodity prices Exchange rates Environmental regulations Stakeholder support for growth plans Extreme winter weather Regional labour issues Each business segment Risk/Success factors
Subsequent Event
Strong 4th Quarter results 1.214 billion earning , up from 1.020 billion Damage to fire last year recovered, fully functional Production capacity up to 260000 bpd from 225000 bpd
However: Production is down: 206100 down from 263300 Average cost up as a result: 19.50 from 11.95 Net debt was 2.9 billion, compared to 2.2 billion from 2004
Outlook & Risk/Success Factors
Outlook & Risk/Success Factors
Control cost per barrel @ 16 to 16.75
Increase bitumen supply with proved supply and upgrader capacity to 350,000 bpd in 2008
Increase natural gas production to an average of 205 to 210 mmcf per day.
Maintain a strong balance sheet with debt and hedging management with 3.5 billion investment in 2006
Consolidated Financial Statements
Sensitivity Analysis
Consolidated Statement of Earnings
Revenues
Revenues INCREASE: $2421 millions (27.9% increase from 2004)
The increase resulted primarily from: Higher average commodity price (offset by a 7% increase in
the average CDN$/ US$ exchange rate) increased revenue by $1.2 billion
Increase crude oil production increased revenue by approx $220 million
Higher refined product wholesale and retail prices, increase in sales volumes, one full year of operations of the Refining and Marketing division increased revenue by approx $890 million
These increased is partially offset by hedging losses reduced revenue by approx $380 million
Expenses
Purchases of crude oil and crude oil products INCREASE Higher benchmark crude oil feedstock prices, Higher volume and refined products feedstock required as a result of 1 full year of operations for
R&M Operating, Selling and General INCREASE
The effects of 12 months of operations at R&M - US Higher operating expense higher energy costs Higher cost for obtaining certification under the Sarbanes-Oxley Act, and higher stock-based
compensation expense Increased maintenance activities
Financing expense DECREASE Lower foreign exchange gains on the Suncor’s US$ denominated long-term debt
Net Income
Revenue increased by 27.9%, Expenses increased by 29.1%
Earnings Before Income Taxes increased by 22.8%
Income Tax expense INCREASED
Net Income, EPS INCREASE by $0.33
Cash Dividend INCREASE by 4.3%
Consolidated Net Income
Net Income Analysis
Balance Sheet Statements
Analysis of Balance Sheet
Increased in AR - due to higher sales volumes and higher price
Increased in Property, Plant and Equipment – due to company’s expansion
Increased in AP and accrued liabilities related to increased capital spending in the fourth quarter and higher accrued royalties payable
Derivative Financial Instruments Commodity Hedging Activities
To hedge against the potential adverse impact of changing market prices due to variations in underlying commodity indices
Suncor did not enter into any new arrangements in 2004. The strength of the its financial position, combined with stable operating costs and a growing production base, reduces the company’s risk to crude oil price volatility.
Prior to the suspension of the hedging program, Suncor had entered contracts to fix the price on 36,000 barrels of crude oil per day at an average price of US$23 per barrel, which resulted in decreased in net earnings by $397 million.
Financial Hedging Risk management strategy to manage exposure to interest rate fluctuations The interest rate swap contracts involve an exchange of floating rate and fixed
rate interest payments between the company and investment grade counterparties
Energy Trading Activities Energy trading activities focus on the commodities the company produces. To gain market information and earn trading revenues
Cash Flow Statements
Cash Flow from Operations
Cash Flow Analysis
Return on Capital Employed (ROCE)
Return on Capital Employed
Capital Employed
Return on Capital Employed
Stock Information
If $100 was invested in Suncor on December 31, 1992, it would have
grown to $3,190 by the end of 2005.
Stock Info as of March 10, 2005
Total Return on Investment
Suncor’s return to shareholders has outperformed the TSX Integrated Oils and the S&P 500.
Market Segment Analysis
Recommendations
BUY
Encana Corporation
Agenda
History and Background Management Team Corporate Profile Business Strategy Financial Statement Analysis Risk Management Stock Information as of Wednesday, March 08, 2006 Recommendation
History and Background
In 2002, merger agreement was reached between two energy company: Alberta Energy (AEC) PanCanadian Energy (PCE)
Alberta Energy is created by the government of Alberta in 1975 By 1993 Alberta government sold the entire ownership to make AEC as the public
owned company By 1995, AEC put its growth strategy on oil and gas after selling off all other
resource investment. By 2001, AEC has become the largest natural gas producer and also largest
independent operator of gas storage.
History and Background PanCanadian was created by Canadian Pacific and gas
company in 1958 PanCanadian roots go back to the construction of the nation first transc
ontinental railways Canadian Pacific Railways made natural gas discovery in 1883 and later
create Canadian Pacific and gas company in 1958 which later create PanCanadian in 1973
In 2000, PanCanadian launches one of the continent largest CO2 miscible flood project at Weybury, Saskatchewan
In 2002, Gwyn Morgan and David O’Brien announced the merger agreement between AEC and PanCanadian Each AEC Share was converted to 1.472 PanCanadian Share On April 8, Encana begin trading on the TSX and NYSE under the symb
ol ECA. Its enterprise value now is around 52 billion
History and Background
Management Team
Gwyn Morgan, President & CEO Served as Chief of Operating Officer before elected as CEO in January 01,
2006 Education : Northern Alberta Institute of Technology and University of Wyom
ing Key architect of the company North America’s resource play strategy More than 25 years of experience
Brian Ferguson, Executive Vice President & CFO Education : University of Alberta and University of Western Ontario Member of CICA, CICA’s risk management and governance board More than 22 years of experience
Management Team
Roger Biemans, Executive Vice President and President of Canadian Plans Region Responsible for upstream exploration and production in the Alberta and Saskatch
ewan Education : University of Calgary and University of Western Ontario More than 10 years of experience
John Brannan, Managing Director & Frontier and International New Ventures Responsible for leveraging Canadian frontier and international new venture Education : Texas A&M More than 26 years of experience
Sherri Brillon, Vice President, Strategic Planning & Portfolio Management Responsible for the organization wide-coordination and critical analysis of the co
mpany’s strategic plan Education : University of Alberta More than 21 years of experience
Management Team
Bill Oliver, Executive Vice President & President, Midstream & Marketing Responsible for marketing of North American resources play Education: Simon Fraser University, B.C and Cornell University, N.Y More than 20 years of experience
Gerry Protti, Executive Vice President, Corporate Relations Responsible for regulatory services and international, aboriginal, public and community relati
ons Education: University of Alberta, University of Western Ontario, and University of Pennsylva
nia
Michael M. Graham, Executive Vice President & President, Canadian Foothill Regions
Responsible for all upstream operations in Northern Alberta, B.C, and southern Northwest Education: University of Wyoming More than 20 years of experience
Management Team
Hayward Walls, Executives Vice-President, Corporate Service & Chief Information Officer Responsible for Encana’s information system and technology and human resourc
es Education: University of Brunswick More than 23 years of experience
Don T. Swystun, Executive Vice-President, Corporate Development Responsible for Encana’s acquisitions, reserves assessment, and business inteli
gence More than 11 years of experience
Jeff Wohajn, Executive Vice President and President Encana Oil and Gas (USA) Responsible for upstream exploration and production in the U.S Education: University of Calgary and Richard Ivery School of Business
Company Overview
Primary Goal Continue to increase net asset value per share by balancing
capital investment between: Disciplined development of resources play Share buyback
Target An average 10% annual sales growth per share
Company Overview
Strategic Focus North American natural gas Canadian in-situ oilsands
Competitive Advantage Large land base with huge undeveloped resources Leading to technical competencies 30 years of experiences with unconventional reservoir developm
ent Low operating cost High working interest and infrastructure control
Company Overview
MissionEnergy for People
VisionEnCana will be the world's High Performance Benchmark independent oil and gas company
Constitutional Meritocracy
EnCana is a company where shared principles guide our behaviour and merit determines our reward
Our Shared PrincipleStrong Character, Ethical Behaviour, high performance, great expectation, Dynamic and discipline
Business Strategy1) Focus on Resource Play
Business Strategy
Business Strategy
2. Divesture of conventional asset and International operation other than North America
Asset to be divestured in 2005:- Gulf of Mexico
2.1 billion (closed)- Canadian conventional
326 million (closed)- Ecuador
1.42 billion will close at Q4 2005- Natural Gas Liquid Business
Targeted for Q4 of 2005- Gas Storage Business
Targeted for Q1 of 2006
Business Strategy
3. Acquisition
Acquisition Tom Brown Inc to strengthen the asset position for $2.7 billion to increase Net Asset Value of share
This acquisition align with the resource play strategy
Tom Brown Inc appear to be undervalued by the appraisal compared to the potential resource calculated by unconventional way
Business Strategy
Acquisition and Capital Investment Since 2002:
Has invested 6.3 billion in key resource development
Invested 4.3 billion in property and corporate acquisition
Business Strategy
4. Improving Technology
- CO2 Miscible Flood
Ex : Weyburn Project
- Coalbed Methane
Business Strategy
4. Technology (continued)
- GL-Dhows
allow to separate gas and
liquid; oil and water
- SAGD
Upstream operation
•Upstream income increase by 30% compared to increase of 87% from 2002 to 2003
•North Amercian Production and mineral taxes for produced gas increased 76% in 2004 compared to 2003 primarily due to increased in natural gas prices and volumes in US and higher effective tax rate on production growth in Colorado
Midstream and Market Optimization
• Revenues and purchased products expense in this sector increased in 2004 compared to 2003 result due to increases in commodity prices
• operating cash flow increase 68 million in 2004 as a result of improved margin from natural gas liquids and gas storage optimization
Corporate
• Revenues happen to be losses since there is unrealized mark to market losses related to financial and commodity contract
• While the interest expense increase drastically because of higher outstanding debt level during the purchase of TBI
CAPEX Summaries
•The CAPEX is increasing by 22% compared to 24 % from 2002 to 2003.
• The increasing CAPEX in upstream and acquisition is offset by disposition some of the asset
Corporate Value Drivers
Increase production capacity from existing assets.
Reduce operating costs of existing assets through economies of scale and by upgrading process technologies.
Increase reserves (asset base) by pursuing new developments.
Reserves Resource Play
10 Key Resource Play
Proved Reserves
Reserves Resource Play1. Greater Sierra
Reserves Resource Play2. Cutbank Ridge
Reserves Resource Play3. Coalbed Methane
Reserves Resource Play4. Shallow Gas
Reserves Resource Play5. Jonah
Reserves Resource Play6. Piceance
Reserves Resource Play7. Fort Worth
Reserves Resource Play8. East Texas
Reserves Resource Play9. Foster Creek
Reserves Resource Play10. Pelican Lake
Analysis of Income Statement
Three sources of revenue; upstream, midstream and market optimization, and corporate
Net earnings increased $1.1 billion in 2004 including $1.4 billion gain on sale of U.K discontinued operations
Net earnings from Continued Operation is increased to $ 2.2 billion from $ 2.1 billion
Maintain a steady based stock compensation 17 million and planning to reduce the number of stock of stock based compensation
Analysis of Balance Sheet
50% of its asset were financed through Debt and the other 50% through shareholder Equity
Its liquidity level to pay its current debt is high 1.18 compared to 1.26 in 2003
Number of debt outstanding increased by 1 billion caused of the purchase of TBI must be accommodated by borrowing
Property, Plant and Equipment is increased by 30% from 17,770 to 23,140 million
Analysis of Cash Flow Cash flow increased to $4,980 million in 2004, $521 million increase from 2003
Cash flow from continuing operations increased $ 470 million to $ 4,605 milllions from 2003
While Cash flow from operating is 4.5 billion compared to 4.3 billion (effect of discontinued operation, other change in asset and liabilities and non cash working capital)
Free Cash Flow = 4.5 – 2.3 – 4.8 = -2.6 billion
They Maintain a steady investment on CAPEX while buying Tom Brown Inc as their business combination.
They are paying an increasing dividend by (32%) and purchase a number of shares
Financing Activities
Financial Instrument and Risk Management Financial (commodity price, foreign exchange, interest ra
te & credit risks)
Operational
Environmental, health, safety and security
Reputational
Financial Instrument and Risk Management Lock in near term ROI
Downside protection for Cash flow
Combination of fixed price swaps & put options
Financial Instrument and Risk Management
Financial Instrument and Risk Management
Stock Informationas of 8 March 2006
Ticker symbol : ECA Publicly traded in
- New York Stock Exchange (NYSE) - Toronto Stock Exchange (TSE)
Volume : 4,556,100 Price : CAD $49.44
: US $42.72 52 week High/Low: $59.82 / $31.31
Stock Information as of Wednesday, 8 March 2006 Shares Outstanding : 1,765 million Market Capitalization : 71,482.58 million Dividend Yield : 0.70% Annual Dividend : $ 0.30 Last Dividend Payout : 12/13/2005 Last Dividend Amount : $ 0.08 P/E : 11.68 EPS : 3.66
Stock Price Movement as of Mar 8,06 6 months
3 years
1 year
5 years
Encana’s Direct Comparison with S&P 500 of 8 March 2006 6 months
3 years
1 year
5 year
Fisher Approach
Functional Factor Superior technology Leader in natural gas industry and natural gas storage
People Factor Educated and experienced management
Essential Investment Characteristic Strong competitive position Hedging
The Price of the stock 28.6 % below 52 week high and 19.1 % above 52 week low High P/E ratio
Recommendation
BUY
The End
Any Questions?
