An Oil and Gas Profit Factory

7 Recommendations

In a summertime piece on Devon Energy (NYSE: DVN), I noted the huge rift between fast-growing independent E&Ps and the lumbering integrated oil companies. Well, if you've been seeking a happy medium, look no further than EnCana (NYSE: ECA).

Calgary-based EnCana officially became an integrated oil firm in 2007, thanks to its 50/50 oil sands joint venture with ConocoPhillips (NYSE: COP). Integrated, by the way, signifies that both production and refining activities occur in-house. This operation, which generated $1.3 billion in operating cash flow during the year, has been such a success that BP (NYSE: BP) and Husky Energy were moved to strike their own poetic partnership.

With an enterprise value north of $60 billion, EnCana is a bit bigger than the leading American independents, but it's still nimble enough to grow production and replace reserves to an impressive degree. In 2007, natural gas production (which accounts for over 80% of the company's output) rose 6%. The company replaced over 225% of total production at a drill bit finding cost of $1.65 per thousand cubic feet equivalent (mcfe).

That latter figure, which matches the achievement of the XTO Energy (NYSE: XTO) machine, got a big boost from the oil sands business. As we learned from Suncor (NYSE: SU), finding the bitumen is just the beginning, so don't get too excited about this bargain-basement number. Natural gas and natural gas liquids finding costs were closer to $2.40/mcfe.

Because EnCana focuses so heavily on unconventional resource plays, its drilling efforts are intensive. The firm's count of net wells drilled leapt 23% for the year and 62% in the fourth quarter. This won't single-handedly keep Precision Drilling Trust (NYSE: PDS) in business, especially since nearly half of EnCana's natural gas production will be in the U.S. this year. The well figure does support the notion, however, that North American natural gas drilling should continue to get ever more factory-like in the future.

What do the unfolding financial crisis and ongoing market volatility mean for your money? The Fool's here with answers. Get the best of our daily commentary and analysis in your inbox simply by entering your email address in the box below.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Compare Brokers

TD AMERITRADE
more info
ShareBuilder
more info
Power E*Trade

more info
Scottrade
more info
Fool Disclosure

DocumentId: 579186, ~/articles/articlehandler.aspx, 11/21/2008 9:01:04 PM,

Sign up for FREE Motley Fool site access to keep reading:

“An Oil and Gas Profit Factory”

Signing up allows you to comment on articles and on the discussion boards.

It's completely FREE and will take only 10 seconds.

Privacy / Legal Information

We will use your email address only to keep you informed about updates to our web site and about other products and services that we think might interest you. The Motley Fool respects your privacy. Please read our Privacy Statement

.

Related Tickers

EnCana Corp (USA)

ECA Up! $38.16 +3.85 (+11.22%) 4:02 PM
CAPS Rating:
836 Outperforms
20 Underperforms
Rate This Stock

Major Indices

S&P 500800.03+6.32%
DJIA8,046.42+6.54%
NASD1,384.35+5.18%
Updated: 4:07:36 PM
Sponsored by:

The Motley Poll

What changes are you making to your portfolio?

Sponsored by: