The Canadian Press

The Toronto stock market will see the debut this week of a brand new oilsands player and a more streamlined version of one of the continent’s top natural gas names.

Shareholders in EnCana Corp. (TSX:ECA) gave virtually unanimous support last week to the plan to divide the Calgary-based energy giant into two distinct companies.

With that major milestone, and the blessing of an Alberta court, out of the way, EnCana and its oil-centred spinoff Cenovus Energy Inc. (TSX:CVE) will start operating independent of one another on Tuesday.

Regular trading in both companies — under the stock symbols of ECA and CVE respectively — begins Thursday on Canadian markets and Dec. 9 on the New York Stock Exchange.

“It’s giving investors ways to play both commodities,” said John Stephenson, portfolio manager with First Asset Investment Management in Toronto.

The key rationale behind the split was to make the value of each distinct business segment easier for investors to get their heads around.

Both companies began trading on an “if, as and when-issued” basis on Nov. 2.

If that early activity is any indication, investors seem to like Cenovus better than the new EnCana — likely because oil prices are currently so much more robust than natural gas prices, Stephenson said.

Cenovus will include steam-assisted gravity drainage oilsands projects at Christina Lake and Foster Creek, as well as stakes in two of two U.S. refineries operated by U.S. joint-venture partner ConocoPhillips.

“From the moment of its creation, we expect Cenovus will be an industry leader,” Brian Ferguson, EnCana’s chief financial officer and soon-to-be Cenovus chief executive, told reporters last week.

He said production is expected to grow 15 to 20% next year.

In a research note coinciding with the start of when-issued trading, UBS analyst Andrew Potter pegged Cenovus’ value at between $25 and $27.50 per share, predicting the new firm will be a “free cash machine.”

Ferguson said Cenovus’ main competition will likely be major Canadian oilsands names like Suncor Energy Inc. (TSX:SU), Canadian Natural Resources Ltd. (TSX:CNQ), Imperial Oil Ltd. (TSX:IMO) and Canadian Oil Sands Trust (TSX:COS).

Cenovus will adopt Canadian financial reporting standards, since most of its operations will be in Canada, and the firms to which investors and analysts will be comparing its performance are largely Canadian.

EnCana reports all of its earnings in U.S. dollars.

“In our view it’s best that we make it easy for shareholders and for the investment community to quickly compare Cenovus head to head to see the value that we see and just how strong our competitive position is,” Ferguson said.

First Asset’s Stephenson said Cenovus’ oilsands assets are “probably some of the best in the business, if not the best in the business,” but its challenge is that it is still relatively small compared to some of its peers.

Suncor, for instance, has a stock market value of close to $60 billion, whereas Cenovus’ would be closer to $20 billion.

“If you want leverage to oilsands or oil prices … why not just buy Suncor?” Stephenson said.

The new EnCana will focus exclusively prolific, but technically challenging, unconventional natural gas reservoirs throughout North America.

Before the split, EnCana was already highly regarded for its work discovering and developing shale gas.

It was one of the first movers in areas like the Horn River Basin in northeastern British Columbia and the Haynesville shale, which straddles Texas and Louisiana. It has amassed formidable land positions in both of those emerging regions and others.

EnCana chief executive Randy Eresman, who will continue on in his role in his company’s new incarnation, says its main competitors will be U.S. natural gas heavyweights like Chesapeake Energy Corp. (NYSE:CHK), EOG Resources Inc. (NYSE:EOG) and Devon Energy Corp. (NYSE:DVN).

UBS’s Potter expects EnCana’s post-breakup share price to trade in the US$40 to US$42.50 range, and expects it to offer “a slightly better combination of growth and free cash flow than its peers.”

EnCana’s main headwind will be natural gas prices, which are trading well below the level needed to makes most conventional drilling in Canada economically viable — around US$7 to US$8 per 1,000 cubic feet.

Some of the more prolific unconventional reservoirs in which EnCana is involved can be developed economically at today’s prices around US$5 per 1,000 cubic feet.

EnCana forecasts a 2010 gas price of US$5.50, eventually recovering to US$6.50 longer term.

@page_break@“The best producers at the lowest cost will be the ones that survive in this new environment,” Eresman said.

Although he’s bearish on gas prices, Stephenson said he likes the new gas company because of its attractive valuation at the moment.

“It’s the best of breed in terms of the gas business. They’re in early. They do things right. They know how to hedge and they’ve been brilliant,” he said.

“And you’re getting it cheap relative to things in you can be investing in, and if you do get a recovery in the gas markets, this place is well situated.”