Monday, May 12, 2008

EnCana Breaks off a Little Sumpin

Now every once in a while
There's a crack in my smile
Dark voices are talking to me
Dark voices tell me the way
It's supposed to be
They said "Breakin' up"
They said "It's hard to do"
But what they say
About breakin' up
Y'know it's just not true
Breakin' up, it's easy to do

EnCana has long held it is undervalued by the market and has previously considered spinning off a chunk of its business, believing that the company is less than the sum of its parts. - CNN

I makes sense in a few different ways.

I’m sure investors will be happy with a boost in value. By splitting the tarsands from natural gas EnCana’s halves (or 7/8ths & 1/8th) are massively more understandable.

It also insulates Encana’s natural gas operations from any volatility in tarsands extraction – and I for one thing this is the biggie here. Tarsands extraction is one of the most environmentally unsound practices around, and sooner or later someone’s going to be on the hook for a cleanup bill bigger than that time your buddy invited the entire high school over for a party while his/her parents were away. It’s good for EnCana to protect its traditional core should politics shift in Oilberta, or federally for that matter.

It’s the beginning of a trend, I for one think we’ll see a number of similar spinoffs as companies struggling for capital to move more aggressively into the tarsands will split themselves in an effort to both boost valuation and insulate themselves from what could turn ugly.

**Disclaimers: I won’t call it oil sands, the tarsands is tarsands dagnabbit. Also, I think it already has turned pretty ugly, ducks right?

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