RE: I have one word for youWell that’s a very good question.
We have to answer a few questions first;
1 – Does Encana have any other non-core assets that they may want to sell and reduce debt levels further?
2 - They will need to spin-off heavy oil assets into another company with or without a partner or spin-off NG assets into the income trust and keep heavy oil assets within the current corporate structure and form JV's.
Why should ECA turn into an income trust?
1 - Stable predictable cashflow, lots of it.
2 - Very little exploration risk with NG assets (cookie cutter exploration model) and low cost producer with high netbacks.
3 - Reserves will be valued higher than they are today, and long life & low decline rates will increase RLI
4 - Not sure about taxes but I'm sure it will benefit corporate level.
If I had to guess I'd say before 2006 is out, ECA will convert NG business into an income trust and spin it off to current shareholders and maybe keep heavy oil assets to develop with an international partner possibly Chinese interests.
ECA will then convert back to and E&P Company for all kinds of O&G exploration on an international scale and start their growth again.
At least current shareholders will be rewarded for the hidden value in ECA current long-life reserves and stop getting beat up by US based analysts and hedge funds predicting the sky is falling and scaring the retail investors into selling this high quality company for a major discount.
Hey I'm guessing but you never know, sooner or later management has to make up their minds what they want to do to protect against an unwanted takeover from US interests.
Either way shareholders will make money but I'd rather keep the corporate structure in Canada where income trusts are legal and sustainable as opposed to US based where income trusts don’t grow.
Cheers and GLA