DBRS Downgrades Encana Corporation, Trends Stable

DBRS has today downgraded the ratings of Encana Corporation (Encana or the Company), including the Unsecured Senior Notes, to BBB from BBB (high), and changed the trend to Stable from Negative. The rating downgrade is predominantly driven by Encana’s heavy exposure to the weak natural gas pricing environment in North America and its impact on the Company’s credit risk profile. With its weaker cash flow generating capabilities, the Company will likely have to continue to divest non-strategic assets and enter into new joint ventures to alleviate pressures on the balance sheet while pursuing its growth strategy to increase oil and liquids production.

DBRS believes a meaningful recovery in the North American natural gas sector will remain challenging. Excess supply is exacerbated by (1) above-average gas storage levels; (2) a significant inventory of backlogged wells in major plays, including the Marcellus and Haynesville shale basins; and (3) growing associated natural gas production from liquids-focused drilling. Assuming normal weather conditions, demand is not expected to rise materially to bring supply and demand back into balance. As a result, further deterioration of Encana’s credit metrics is imminent in 2013, as the majority of total above-market hedging positions are expected to be rolled off in 2012. Consequently, Encana’s credit risk profile is no longer consistent with a BBB (high) rating.

The Stable trend reflects Encana’s strong liquidity position to withstand current bottom-of-cycle natural gas pricing conditions. DBRS expects that natural gas fundamentals will gradually improve and restore the demand/supply imbalance in the medium term. The current BBB rating and Stable trend also assume that proceeds from future asset sales and joint ventures will fund a significant portion of future capital spending so that leverage and liquidity will remain consistent with the current rating. If debt rises materially and/or liquidity weakens, this could trigger further negative rating actions.

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.