S&P Lowers Outlook for Encana on Profitability Pressure Due to Weak Gas Prices

       By Debbie Cai 

    Standard & Poor's Ratings Services lowered its outlook on Encana Corp. (ECA) to negative from stable, saying weak gas prices will continue to weigh on the natural-gas producer's profitability and funds from operations.

    S&P affirmed Encana's long-term corporate credit rating at triple-B, which is two steps into investment-grade territory.

    S&P credit analyst Aniki Saha-Yannopoulos said the outlook revision reflects expectations Encana's earnings before interest, taxes, depreciation and amortization, and FFO will continue to decline despite the company's increasing liquids production and competitive cost profile.

    The ratings firm said it anticipates Encana's credit measures to stay stressed through next year as the company continues spending to increase its liquids production, although increasing liquids production is a positive for Encana.

    However, the expected liquids growth and associated cash flow this year isn't not sufficient to compensate for the company's declining cash flow due to its large exposure to weaker-priced gas production, S&P said.

    S&P's ratings incorporate Encana's large reserve base and potential for increased liquids production, expectations of a continued low operating-cost structure, and the ability to maintain strong liquidity. The ratings also reflect the firm's view of the company's exposure to the North American natural gas market, whose prices are likely to remain depressed, thus driving S&P's forecast of declining medium-term credit measures.

    Last month, the Calgary, Alberta-based company posted a fourth-quarter loss that was much smaller than its year-earlier loss and better than analyst expectations.

    Shares rose 1.5% to $19.61 in recent trading. The stock is down 11% over the past six months.

    Write to Debbie Cai at debbie.cai@dowjones.com