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EnCana Corporation
-Cost of Capital
Nabil Naouli Yong Peng Ahmed Alenazi Raj Kancharapu
Table of Contents
1. Introduction 2
2. History 2
a. Top Competitors 4
b. Major Product and Services 5
c. SWOT Analysis 5
3. Calculating Cost of Capital 6
a. Calculating Cost of Equity 7
i. Risk free rate 7 ii. Market Risk Premium 8 iii. Beta 8
b. Calculating Cost of Debt 9
c. Weighted Average Cost of Capital ( WACC ) 10
d. WACC- EnCana Corp. 2010 12
4. Discussion Questions & Summary 12
a. Hurdel Rate 12
b. Retained Earnings 13
c. Depreciation & Deferred Taxes 14
d. Summary: 14
5. References 15
Introduction
The case involves calculating the cost of capital for EnCana Corporation.
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EnCana Corporation (EnCana) is one of North America’s leading natural gas producers. It is among the largest holders of natural gas and oil resource lands onshore North America and is a technical and cost leader in the in-situ recovery of oil sands bitumen. EnCana’s other operations include the transportation and marketing of crude oil, natural gas, and natural gas liquids; as well as the refining of crude oil and the marketing of refined petroleum products. Its operations are located in Canada, the US, Ecuador, and the UK.
EnCana operates under five reportable segments: Canada, the US, downstream refining, market optimization, and corporate and other.
The Canada segment is engaged in the exploration, development and production of natural gas, crude oil, and natural gas liquids (NGLs) and other related activities within the Canadian cost centre. The segment comprises the Canadian plains division, the Canadian foothills division, and the Canadian upstream operations of the integrated oil division.
The Canadian foothills division includes EnCana's key natural gas growth assets in British Columbia and Alberta. Four key resource plays are located in the Canadian Foothills division: Greater Sierra, Cutbank Ridge, and coal bed methane (CBM). The CBM key resource play (Horseshoe Canyon CBM, and commingled shallow gas) is located within the Clearwater business unit. In addition, EnCana has established a land position in the
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