Encana Readies Spinoff of Clearwater Alberta Properties into PrairieSky, estimated to be worth $2.5 billion or more

Encana Readies Spinoff of Alberta Properties by Carolyn Davis, April 15, 2014, Naturalgasintel
Encana Corp. is readying a spinoff of PrairieSky Royalty Ltd. to create one of Canada’s largest energy royalty companies with 5.2 million acres in Alberta that extend to the U.S. border. The largest natural gas producer in Canada said late Monday PrairieSky had obtained a preliminary prospectus for an initial public offering set to be concluded by early June. Encana would receive net proceeds.

PrairieSky is being created from Encana’s fee simple mineral title lands and associated royalty interests that formed part of the Clearwater business unit in central and southern Alberta. The spinoff of the Clearwater portfolio has been planned since last year and is estimated to be worth $2.5 billion or more (see Shale Daily, Nov. 5, 2013). PrairieSky would not directly conduct operations to explore for, develop or produce petroleum or natural gas, Encana said. The company instead would focus on attracting third-party capital investment to develop properties that would provide royalty revenues as petroleum and gas are produced.

Once the offering is completed, Encana would hold the majority interest, and through December, provide some day-to-day administrative services. The Calgary producer plans to act only as an investor.

PrairieSky’s board is to be led by Encana executives that would include James M. Estey as chairman and Sherri A. Brillon, currently Encana’s CFO. Also on the board are Brian G. Shaw, Sheldon B. Steeves, Bruce G. Waterman and Andrew M. Phillips. The management team is to be led by Phillips, who would be president and CEO, L. Geoffrey Barlow as CFO and Cameron M. Proctor, corporate secretary. The announcement by Encana came the same day it agreed to sell most of its Denver-based liquefied natural gas fueling business to Stabilis (see Daily GPI, April 14).

Standard & Poor’s Ratings Services (S&P) has revised its outlook on Encana to “stable” from “negative.”

“The outlook revision reflects our expectation that Encana’s forecast cash flow and credit measures will improve materially under Standard & Poor’s oil and gas price assumptions,” said credit analyst Aniki Saha-Yannopoulos. “In our view, the company is a strong operator, and we expect it to increase its liquids production, which generates higher realized prices, and improve its costs, leading to substantially larger cash flows. ”

S&P is forecasting Encana’s funds from operations to net debt and net debt to gross earnings ratios to “improve materially within the next year to year-and-a-half. “We also believe management’s plans to keep capital expenditures (capex) and dividends within cash flow, announced asset sales, and future financial or strategic decisions will support improving credit ratios,” Saha-Yannopoulos added. Encana is focusing 75% of its capital spending this year — $2.4-2.5 billion — on five core plays that produce mostly oil and liquids. “We forecast the company’s new strategy would lead to a significant increase in liquids production (an increment of about 15,000-20,000 b/d from 2013 levels) leading to about 15% of 2014 production,” said the S&P analyst. “The stable outlook reflects our view that Encana’s credit measures will improve significantly from 2013 year-end results. We expect the improvement to be sustained as the company successfully executes its strategy of improving its production while maintaining a disciplined approach in keeping capex and dividends within its cash flow.”

A positive rating action is “unlikely during our two-year outlook horizon given Encana’s limited product and geographic diversity. An upgrade would be contingent on the company improving its business risk profile, either by diversifying its production and improving profitability, while maintaining its current competitive cost profile, and our expectation of improved credit measures.” [Emphasis added]

PrairieSky, profit machine for Encana by Jameson Berkow, Western Bureau Chief, BNN, April 15, 2014
ANALYSIS: Clearwater is still a little murky, but the picture of profitability it forms is already quite clear. Encana Corp. disclosed some details after markets closed on Monday regarding its plans to launch an initial public offering (IPO) of its Clearwater royalty assets in southern Alberta. With no information contained regarding the amount of money the company – to be called PrairieSky – will raise in its offering, the announcement provided just enough to breed some excitement across Canada’s energy patch. “It’s a bit of a process,” Jay Averill, spokesperson for Encana, told BNN. “[The price/proceeds] will come in a few weeks, after there has been a roadshow.”

As the PrairieSky management team embarks on its first investor pitch tour, analysts have just enough data to start building some hype. Through the preliminary prospectus Encana filed Monday, analysts learned how much the Clearwater asset – which spans an area about the size of New Jersey (5.2 million acres) in southern Alberta and produces mostly natural gas liquids – is really worth.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was approximately $245-million, well ahead of every analyst estimate made prior to Monday’s disclosure. Phil Skolnick at Canaccord Genuity calculates a potential valuation ranging from $3.3-billion to $4.8-billion with a mid-point market cap of about $4-billion. Even at the bottom of that range, PrairieSky is now expected to be worth more than double initial estimates set by analysts when the plan was announced last year.

The new company is also not expected to spend any of its own money on exploration or development, unlike Freehold Royalties, which had previously been cast as the currently operating model PrairieSky would most likely copy. By farming out the actual production work to third parties, PrairieSky will need only to sit back, collect its royalties and in term disperse them to income-hungry investors.

No debt and monthly dividends are what await investors in this new entity when it hits the public markets likely sometime in early June.

“The goal,” RBC’s Greg Pardy wrote in a note to clients on Tuesday, is “preserving financial flexibility.” Pardy said those monthly disbursements would equate to an 85% payout ratio in 2013, implying there is plenty of room to increase the dividend in the future.

Encana is also taking no chances when it comes to the folks who will be in charge of keeping PrairieSky reaching for the… clouds. CEO Andrew Phillips is the former chief executive of Home Quarter, CFO Geoff Barlow previously had the same title at Chinook Energy and Husky Energy and the board of directors will be led by former UBS Securities Canada chair James Estey. “Pent up demand” for the PrairieSky IPO was strong even before the market learned what it will be worth or how the immense experience of the management team.

“From discussions we have had with the buy side, we believe many are doing what homework they can on Clearwater,” Dirk Lever, managing director at AltaCorp Capital, told clients in a note published midday Monday, about seven hours before Encana filed its preliminary prospectus for PrairieSky. “We believe retail and institutional demand for Clearwater will be strong for a well telegraphed and anticipated Initial Public Offering.”

Encana CEO Doug Suttles first announced this plan as part of his broader turnaround strategy last November. After getting just a hint of what the company stands to make from simply putting a minority stake up for offer, it begs the question why someone at Encana didn’t propose this plan even sooner.

Encana said to seek at least $700M from Royalty IPO in what could be largest Canadian energy offering since 2010 by Rebecca Penty and Doug Alexander, Bloomberg News, April 17, 2014, Financial Post
Encana Corp.’s sale of shares in a royalty unit as early as next month is poised to be the largest initial public offering in the Canadian oil and natural gas industry since 2010. The PrairieSky Royalty sale by Encana, Canada’s largest gas producer, marks the first of a potential wave of IPOs by the nation’s petroleum companies in 2014. Encana is seeking to raise at least C$700 million ($637 million) from its PrairieSky sale, said two people familiar with the plans who asked not to be identified because the discussions aren’t public. Forecasts for a rebound in first-time share sales come as secondary offerings surge, buoyed by rising fuel and share prices. More receptive equity markets would allow private investors such as Warburg Pincus LLC, Riverstone Holdings LLC and NGP Capital Management LLC, to capture profits through IPOs after making a push into Calgary’s financing market in 2006.

The IPO pipeline is expected to be “quite robust,” Adam Waterous, Bank of Nova Scotia’s head of global investment banking, said in an April 11 phone interview from Calgary, crediting “supportive” equity markets. “That’s the fuel that you need to complete M&A transactions and increase the likelihood of IPOs.” An IPO of about C$700 million for PrairieSky would be the biggest initial share sale since oil-sands developer MEG Energy Corp. raised the same amount in its July 2010 sale, according to data compiled by Bloomberg. Encana, which said in a filing this week that it will initially hold a majority of PrairieSky shares, didn’t disclose how much it’s seeking to raise.

Encana declined to comment on possible size of the PrairieSky IPO, Jay Averill, a company spokesman, said in an e- mail. The success of the IPO will be determined by market demand, Averill said.

PrairieSky will hold about 5.2 million acres (2.1 million hectares) of oil and gas properties in central and southern Alberta and pay dividends. Royalty properties generate revenue through levies paid by other producers drilling on the land.

Canadian-listed IPOs in the industry have slumped since 2011, a year when companies raised $780 million from 13 sales, according to Bloomberg data.

PrairieSky will be the first oil-and-gas IPO since Cardinal Energy Ltd. raised C$225 million in its December stock sale to develop assets it purchased from Penn West Petroleum Ltd. Cardinal, focused on delivering dividends along with production growth, was one of two Canadian IPOs for the sector last year. “That market was dead,” Shane Fildes, head of Bank of Montreal’s global energy group, said in an April 9 interview. There’s “no question” there will be additional energy IPOs this year, he said, as larger companies including Penn West, Encana and Talisman Energy Inc. sell assets, creating opportunities for more deals like Cardinal’s. Cardinal has surged 51% since its initial share price of C$10.50.

Canada’s S&P/TSX Energy Index is up 13% this year, compared with a 12% rise for the S&P Oil & Gas Exploration and Production Select Industry Index in the U.S. Oil and gas prices have risen more in Canada than the U.S as the decline in the value of Canada’s dollar relative to the U.S. currency makes exporting Canadian fuels more profitable.

Seven operators in the Montney shale, a formation soaked in gas liquids that straddles British Columbia and Alberta, are weighing public sales after exhausting private-equity money, according to a person familiar with the confidential talks who asked not to be identified. That’s in addition to a potential IPO by Seven Generations Energy Ltd., also a Montney producer, the person said. Closely held Seven Generations said this month it was shifting its ownership to the public market and examining “potential liquidity alternatives.” The company is expected to pursue an IPO this year, the Globe and Mail reported in March, not identifying its sources. Pat Carlson, CEO, didn’t return phone and e-mail messages.e of the year,” Neldner said. [Emphasis added]

Encana among most ethical companies in the world, Ethisphere survey finds by Jacquelyn Smith, Business Insider, March 21, 2014, The Financial Post
We’re so used to hearing about corporate scandals, lawsuits, and corruption today that it’s easy to assume most companies bend the rules to their benefit. But it turns out that there are plenty of businesses that are giving back to the community through volunteer work, promoting ethical business standards, and being transparent about their corporate practices. In an effort to honor those companies that are leading their industries in compliance, corporate governance, and social responsibility, the Ethisphere Institute released its eighth annual list of the World’s Most Ethical Companies. Thousands of companies from around the globe were nominated for this year’s list. A total of 144 companies were ultimately selected, representing 41 industries in 22 countries.

To compile the list, Ethisphere, an independent research center that promotes best practices in corporate ethics and compliance, issued a survey with a series of multiple-choice questions that were intended to “capture a company’s performance in an objective, consistent, and standardized way.” Scores were then generated in five key categories: ethics and compliance programs; reputation, leadership, and innovation; governance; corporate citizenship and responsibility; and culture of ethics.

If and when a company’s score warranted further consideration, Ethisphere relied on independent research, supporting documentation, and interviews with company leadership. “Placement on this list helps companies attract and retain key stakeholders such as employees and customers,” says Tim Erblich, CEO of the Ethisphere Institute. “This in turn helps companies drive growth and performance, especially as they expand into new markets around the world.” The final list, which includes 21 newcomers, is not a ranking. All selected companies are equally winners. Here are the 144 most ethical companies in the world:

Company     Country     Category
3M Company    USA    Industrial manufacturing
ABB Asea Brown Boveri Ltd    Switzerland    Energy, oil and gas
Accenture    USA    Business services
Adobe Systems Incorporated    USA    Computer software
AECOM    USA    Engineering and design
AES Corporation    USA    Energy and utilities: electric
Aflac Incorporated    USA    Insurance: health
All Good Organics    New Zealand    Food and beverage products manufacturing
Alyeska Pipeline Service Company    USA    Energy, oil and gas
Applied Materials, Inc.    USA    Electronics
Aramark    USA    Food service
Arthur J. Gallagher & Co.    USA    Insurance: brokerage
Atlas Copco AB    Sweden    Industrial manufacturing
Autoridad del Canal de Panama    USA    Transportation and logistics
Avnet, Inc.    USA    Electronics
Banco do Brasil S.A.    Brazil    Banking
Baptist Health South Florida    USA    Healthcare services
BlueCross BlueShield of North Carolina    USA    Insurance: health
Blue Shield of California    USA    Insurance: health
Capgemini    France    Business services
CareFirst BlueCross BlueShield    USA    Insurance: health
CBRE    USA    Real estate
Cementos Progreso    Guatemala    Industrial manufacturing
CH2M Hill    USA    Rngineering and design
Cisco Systems, Inc.    USA    Telecommunication equipment
Cleveland Clinic    USA    Healthcare services
Colgate-Palmolive Company    USA    Consumer products manufacturing
CRH plc    Ireland    Construction
Cummins Inc.    USA    Automotive
CUNA Mutual Group    USA    Financial services
Deere & Company    USA    Industrial manufacturing
Dell Inc.    USA    Computer hardware
Dun & Bradstreet, Inc. (D&B)    USA    Business services
Eastman Chemical Company    USA    Chemicals
Eaton    USA    Industrial manufacturing
eBay Inc.    USA    Retail
Ecolab    USA    Chemicals
Elbit Systems of America    USA    Aerospace & defense
Encana Corporation    Canada    Energy, oil and gas
Energias de Portugal, S.A. (EDP)    Portugal    Energy and utilities: electric
ENMAX Corporation    Canada    Energy and utilities: electric
Ethical Fruit Company Ltd    UK    Agriculture
Express Scripts Holding Company    USA    Healthcare services
Fluor Corporation    USA    Engineering and design
Ford Motor Company    USA    Automotive
Gap Inc.    USA    Apparel
Gemological Institute of America (GIA)    USA    Professional, scientific and technical services
General Electric Company    USA    Industrial manufacturing
Google, Inc.    USA    Computer services
Granite Construction Inc.    USA    Construction
H. B. Fuller    USA    Chemicals
Hasbro, Inc.    USA    Consumer products manufacturing
Henkel AG & Co. KGaA    Germany    Consumer products manufacturing
Hennes & Mauritz AB (H&M)    Sweden    Apparel
Henry Schein, Inc.    USA    Healthcare products
Hitachi Data Systems    USA    Computer hardware
Holland America Line    USA    Leisure and hospitality
Holland America Line-Seabourn    USA    Leisure and hospitality
Hospital Corporation of America (HCA)    USA    Healthcare services
Iberdrola, S.A.    Spain    Energy and utilities: electric
IHCC (International Hospitals Construction Company)    Saudi Arabia    Construction
illycaffè spa    Italy    Food and beverage products manufacturing
Ingredion Incorporated    USA    Food and beverage products manufacturing
ING U.S.    USA    Financial services
Intel Corporation    USA    Computer hardware
International Paper    USA    Forestry, paper and packaging
Johnson Controls    USA    Industrial manufacturing
Jones Lang LaSalle Incorporated    USA    Real estate
Juniper Networks, Inc.    USA    Telecommunications equipment
Kao Corporation    Japan    Consumer products manufacturing
Kellogg Company    USA    Food and beverage products manufacturing
Kennametal Inc.    USA    Industrial manufacturing
Kimberly-Clark Corporation    USA    Consumer products manufacturing
Knights of Columbus    USA    Insurance: life
L’ORÉAL    France    Health and beauty
Levi Strauss & Co.    USA    Apparel
ManpowerGroup    USA    Business services
Marks and Spencer    UK    Retail
Marriott International, Inc.    USA    Leisure and hospitality
Massachusetts Mutual Life Insurance Company    USA    Insurance: Life
Mattel, Inc.    USA    Consumer products manufacturing
Microsoft Corporation    USA    Computer software
Milliken & Company    USA    Industrial manufacturing
National Australia Bank    Australia    Banking
National Grid    USA    Energy and utilities: electric
Natura Cosméticos    Brazil    Consumer products manufacturing
NextEra Energy, Inc.    USA    Energy and utilities: electric
NiSource, Inc.    USA    Energy and utilites: natural gas
Noblis, Inc.    USA    Professional, scientific and technical services
Northern Trust Corporation    USA    Financial services
Northumbrian Water Group    UK    Energy and utlities: water
Novation, LLC    USA    Healthcare services
Old National Bancorp    USA    Banking
Parsons Corporation    USA    Engineering and design
Paychex, Inc.    USA    Business services
PepsiCo, Inc.    USA    Food and beverage products manufacturing
Petco Animal Supplies, Inc.    USA    Retail
PKN ORLEN S.A.    Poland    Energy, oil and gas
Premier, Inc    USA    Healthcare services
Premier Farnell plc    UK    Electronics
Realogy Holdings Corp.    USA    Real estate
Rockwell Automation, Inc.    USA    Electronics
Rockwell Collins    USA    Aerospace & defense
Safeway Inc.    USA    Retail
salesforce.com, inc.    USA    Computer software
Saltchuk Resources, Inc.    USA    Transportation and logistics
SCA, Svenska Cellulosa AB    Sweden    Consumer products manufacturing
Schneider Electric SA    France    Industrial manufacturing
Sempra Energy    USA    Energy and utilites: natural gas
Sharp HealthCare    USA    Healthcare services
Shiseido Company, Limited    Japan    Health and beauty
SingTel    Singapore    Telecommunications services
Sompo Japan Insurance Inc.    Japan    Insurance: property and casualty
Sonae    Portugal    Retail
Spectra Energy Corp.    USA    Energy, oil and gas: natural gas
Starbucks Coffee Company    USA    Retail
Swiss Re    Switzerland    Insurance: re-insurance
Symantec    USA    Computer software
TATA Power Company    India    Energy, oil and gas
Teachers Mutual Bank    Australia    Banking
Ten Thousand Villages    USA    Retail
Teradata Corporation    USA    Computer software
Texas Instruments Incorporated    USA    Electronics
The Aerospace Corporation    USA    Aerospace and defense
The Hartford Financial Services Group    USA    Insurance: general
The Nature Conservancy    USA    Environmental services
The Rezidor Hotel Group    Belgium    Leisure and hospitality
The Timken Company    USA    Industrial manufacturing
Thomson Reuters    USA    Professional, scientific and technical services
Thrivent Financial for Lutherans    USA    Financial services
Time Warner Inc.    USA    Media
T-Mobile USA, Inc.    USA    Telecommunications services
Unibail-Rodamco SE    France    Real estate
University Hospitals    USA    Healthcare services
UPS    USA    Transportation and logistics
Visa Inc.    USA    Financial services
Waste Management    USA    Environmental services
Westpac Banking Corporation    Australia    Banking
Weyerhaeuser Company    USA    Forestry, paper and packaging
William E. Connor & Associates Ltd.    Hong Kong    Consumer products manufacturing
Wipro Limited    India    Computer software
Wisconsin Physicians Service Insurance Corporation    USA    Insurance: health
Xerox Corporation    USA    Business services

Click here to see the full list and methodology.

[Refer also to:

Isn’t frac’ing supposed to create massive prosperity and jobs? Encana proves it isn’t so! ]

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