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Bulls & Bulls Make Money

01 November 2019 by jbchevrel

Encana (ECACN) is an E&P company, currently the #2 widest E&P co.'s 5y CDS (177) in CDX IG s33 after Apache (APA – 5y 187). The spread between the two converged a tad over past two days, to 10bp. APA 5y CDS was ~stable in high 180s. ECACN 5y CDS bounced wider from 167 to 179 yesterday, before paring some of that move today, back 177, along with a globally risk-on session. ECACN’s Q3 EBITDA beat ($910m vs $868m cons) as production beat (oil + condensates). APA’s Q3 EBITDA beat too ($905m -9%) as production beat and opex fell faster than expected. ECACN’s net leverage is thus ~stable 2.1x, liquidity $3.4b. APA’s net leverage is close to that (2.0x but the path has been higher from 1.7x in Q2). APA disbursed $570m cash on Altus, making FCF optically -$750m prior to $343m asset sales. Net debt thus rose +$470m and leverage rose. ECACN generated positive +$190m FCF and raised FCF guidance for Q4. crude/natgas prices obviously the key. If 55/2.5 context remains, ECACN will probably continue to generate positive ~$300m FCF and use it to pay down debt. 50/2.2 the consensual breakeven for both ECACN and APA. During this week, CLZ9 traded below Monday high at ~57 dipping to 53.7 yesterday on stockpiles and renewed doubts over U.S.-China trade, before bouncing back to 55.7 today on the back of strong data out of the US and China. NGZ19 bounced to ~2.75 after closing last week ~2.45. Natgas futures temporarily fell as production soared to a new high, but we are entering the start of the peak-heating season this month and the demand side of the equation seems to be the main driver for now. Weather forecasts indeed showed temperatures dropping across the map, and that offsets the relatively high stockpiles' effect.