DBRS Downgrades Encana Corporation, Trends Remain Negative

DBRS has today downgraded the long-term ratings of Encana Corporation (Encana or the Company) and Encana Holdings Finance Corp. to BBB (high) from A (low), maintaining the Negative trend. DBRS has also downgraded the Company’s Commercial Paper rating to R-2 (high) from R-1 (low), with a Negative trend.

On November 1, 2011, DBRS changed the trends on Encana’s ratings to Negative from Stable. This rating action reflected DBRS’s concerns about the continued challenging natural gas market environment and its impact on Encana’s credit risk profile. Encana recently released its 2011 financial results, which were relatively weak due to the ongoing weak natural gas pricing fundamentals. The reduced operating performance and weakened credit metrics have resulted in a credit risk profile that is no longer consistent with an A (low) rating. DBRS has maintained the Negative trend on the ratings as DBRS believes a meaningful recovery will remain challenging, largely driven by the ongoing depressed natural gas market outlook. Key ratios could weaken further, particularly from 2013 as the majority of total above-market hedging positions are expected to be rolled off within the next 12 months ($1.8 billion of total $2.0 billion as at December 31, 2011). In the absence of a recovery in natural gas prices, Encana will likely have to execute a combination of the following to maintain an adequate financial profile: (1) capital spending curtailment; (2) dividend reduction; (3) asset sales; and (4) joint venture agreements with upfront cash receipts.

If Encana is successful in implementing a sustainable recovery, which would be largely influenced by the timing of the natural gas price recovery and, to a lesser extent, liquids production volume growth, DBRS may consider changing the trend to Stable. However, the ongoing natural gas price weakness and resulting implications on Encana’s future financial profile in the absence of substantial hedging support would result in further rating pressure.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The Unsecured Long-Term Notes of Encana Holdings Finance Corp. are guaranteed by Encana Corporation.

The applicable methodology is Rating Oil and Gas Companies, which can be found on our website under Methodologies.