INTRODUCTION:
The name of EnCana is derived from Energy and Canada. The company was founded in the year 2002. The company is basically formed by the merger between the Pan Canadian Energy Corporation and Alberta Energy Company. The main objective for the formation of this company is to discover and develop the oil and gas field and selling the corporation’s proprietary production of natural gas, crude oil and natural gas liquids in the wholesale market to commodity purchasers with superior financial credit ratings.
The company is ranked among the largest oil and gas reserve creator in North America. The company has also been ranked as the least risky firm as compared to its competitors. The risk is in terms of geological and commercial development. The natural gas is the major source of revenue. Around 80% of the revenue is generated from natural gas. The growth position of the company has also superseded its competitors.
It holds value to conduct business ethically and responsibly while ensuring the health and safety of employees and contractors and respecting the integrity of the environment. In terms of their people, employees are encouraged to share ideas to decrease costs, increase production, create a safer place to work and protect the environment.
This corporation is also committed to provide a copious supply of natural gas with the cleanest burningremnant fuel to communities.It believes in talent, resourcefulness, and technical leadership.Along with this, more than 3500 employees and contractors are able to invest in the long term.
ANALYSIS:
The analysis is based on the calculation of the appropriate cost of capital for EnCana Corporation. The cost of capital is also known as the weighted average cost of capital. This weighted average rate is required by many companies to estimate the required rate of return of the investor. Whenever the company wants to make decisions over the acceptance of a project, it first needs to evaluate the cost of the capital which will be induced into that project. The acceptance of the project depends upon the return earned by the company from that project, which means that the return must exceed the cost.
In the case of EnCanaCorporation, the company is currently looking for the potential option for expansion in the near future (i.e. Year 2006). For this purpose,EnCanaCorporation needs a view over its current cost of capital to have an idea for the proposed project. To calculate the cost of capital, firstly, the components of the capital need to be calculated individually. These individual components are common stock, preferred stock, and debt. Moreover, in this case the capital components are common equity and long term debts. The company has not issued any preference shares. Neither the bank loan in the calculation of the cost of capital is taken as a part due to its short term nature and the level of the impact upon the total cost of the company.........................
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