Encana – cutting back capital expenditures

Encana (TSX: ECA) is a very large natural gas producer. In their recent quarter, they announced they will be cutting back capital expenditures and reduced expectations due to lower natural gas prices. Hydraulic fracturing is saturating the marketplace, leading to reduced prices. This is well known by the marketplace, and as such, Encana’s stock was only down by 3% today on the news.

The two charts will explain the story, one is of Encana’s stock price, and the other is the spot rate for natural gas, and one will see the correlation:

One can easily see the connection. Encana is a type of company that will not have its equity double in value in a short period of time, but it does represent a fairly good store of value in terms of the vast reserves it can control (especially reserves in politically stable climates such as Canada). It also represents a fairly good proxy for the price of natural gas.

One of the worst ways to play an increase in natural gas, however, is through the Natural Gas ETF (NYSE: UNG) which I have written about before. I will let the chart do the speaking here: