Encana Could Be On The Verge Of A 5-Year Long Growth Spurt

Bernstein said in a Friday note it expects Encana Corp (USA) ECA to achieve growth every year for the next half decade after shrinking in eight years of the last decade, as the company's march toward the aggressive U-Turn production guidance begins.

Accordingly, Bernstein upgraded Encana from Market Perform to Outperform and raised its price target from $10 to $14.

Analyst Bob Brackett indicated he was concerned about the gassy nature of the wells at Montney and it being distant from most end markets. Additionally, he noted that the asset was diverse, ranging from a 3D range of lithology to fluid type.

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However, Brackett noted that the play is no longer distant to end-markets. Moreover, strong condensation demand by Oil Sands should help realization in line with oil price. After careful reviewing and modelling of Encana's Montney assets, the analyst said he had earlier underestimated the play as a condensate producer and now see it as a valuable portion of the company's portfolio.

Bernstein estimates production growth of 26 percent in 2018 and 16 percent in 2019. The firm sees cash flow per share growth driving upside in 2018, while it clarified that it's not making a commodity call or a multiple re-rating.

The firm views announcements of takeaway projects, evidence of return to growth in the fourth quarter results and a reiteration of 2018 outlook in the third quarter results as potential catalysts.

"Key risks would be takeaway delays, Montney wells underperforming type curves, or execution errors," Brackett said.