Cramer’s Newest Natural-Gas Pick

Last week Jon in California sent Cramer an e-mail about EnCana , a play on one of his favorite sectors, natural gas.

EnCana was a traditional oil, oil sands and natural gas business, but that changed at the end of November when the company decided to split itself in two. The majority of

the oil producing assets, refineries and oil sands projects were all allocated to a new company called Cenovus Energy. But the remaining assets, the company’s US and Canadian gas producing properties, stayed with EnCana. Cramer likes that EnCana is focused on natural gas and can improve its already impressive operating metrics even further.

The company has 12.4 billion cubic feet of reserves, 95% of which is natural gas, and it’s split 50/50 between the US and Canada. Also, EnCana has one of the largest acreages in North America too, 15.6 million acres, more than Chesapeake Energy or EOD Resources . And EnCana has much less debt than XTO Energy, Chesapeake Energy or Petrohawk Energy. As of the end of the third quarter of 2009, it was the second largest natural gas producer in North America. EnCana expects to grow at an impressive 9% to 12% clip over the next five years.

The company is in a number of areas Cramer hasn’t focused on, but its properties are solid, especially the unconventional shale plays. EnCana is working the Horn River Shale basin, the largest shale play in Canada that is estimated to have between 250 trillion to 500 trillion cubic feet of natural gas, and the Montney Shale, which is estimated to have 50 trillion cubic feet of natural gas reserve potential. Its operation costs are about $1 per thousand cubic feet, the second lowest behind Petrohawk Energy. And then there’s the dividend, yielding about 2% and far superior to most of its competitors’ minimal payouts. Also, EnCana trades at a substantial discount to the other natural gas plays.

If the company simply traded back to its $45 average, Cramer said, this $34.28 stock would rise 30%. In fact, he is so bullish about the company’s move to become a purer natural-gas play, he thinks the stock could go all the way to $50.

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