A Falling Knife

RESEARCHFebruaryREPORT 1, 2020 FebruaryEncana 3, 2020 Revisited

Stock Rating Sell Price Target $1.62

Bear Price Bull Case Target Case

$0.00 $1.62 $18.18

Ticker OVV Ovintiv Inc. (f.k.a. Encana) Market Cap ($M) $5,375.5 A Falling Knife EV/EBITDA 2020E 4.6x Net Debt/EBITDA 2020E 2.3x In January 2018, the E&U team chose to make a public equity investment in Encana (TSX:ECA) at an average cost per share of 52 Week Performance $13.89. Since, the company’s share price has depreciated by 57% as investors have viewed management’s acquisition of Newfield 145 Exploration and decision to relocate/rebrand as Ovintiv (TSX:OVV) counterproductive. 110 82.3 After reassessing, the E&U team believes investors have not 75 overreacted and that Ovintiv is worth significantly less now than just one year ago. Additionally, the team believes its original thesis were 43.8 far outside its circle of competence and disappointingly focused on 40 macroeconomic projections rather than business quality and intrinsic value.

Today, using a DCF/NAV valuation model and futures-implied energy prices, E&U concludes that Ovintiv is worth a fraction of its TSX:OVV $5.4B market capitalization. The business is considerably TSX Capped Energy Index overindebted and likely to face illiquidity troubles if energy prices continue to decline.

As such, the E&U team will sell the entirety of its 1,219 shares. Energy & Utilities Mircea Barcan [email protected] Garrett Johnston [email protected] Eliano Rexho [email protected] The information in this document is for EDUCATIONAL and NON-COMMERCIAL use only and is not intended to Jamie Bennett constitute specific legal, accounting, financial or tax advice for any individual. In no event will QUIC, its members or directors, or Queen’s University be liable to you or anyone else for any loss or damages whatsoever (including [email protected] direct, indirect, special, incidental, consequential, exemplary or punitive damages) resulting from the use of this document, or reliance on the information or content found within this document. The information may not be reproduced or republished in any part without the prior written consent of QUIC and Queen’s University.

QUIC is not in the business of advising or holding themselves out as being in the business of advising. Many factors may affect the applicability of any statement or comment that appear in our documents to an individual's particular circumstances.

Table of Contents

Company Overview 3

Investment Thesis Revisited 4

Newfield Acquisition Explained 7

Valuation 8

2 February 1, 2020 Encana Revisited

Company Overview

Company History and natural gas production is split between the US and Canada. Current major asset bases include the Ovintiv is one of North America’s oldest oil and natural Montney, Andarko, and the Permian where Ovintiv gas producers. Its history goes back to the late 1800s produces liquids and natural gas: when workers for the Canadian Pacific Railway (CPR) that were drilling a water well discovered natural Montney: The Montney is located in western Canada gas. From then, CPR drilled the first producing gas well and is one of the largest unconventional oil and gas in Alberta which continued in use for 50 years. Over deposits in Canada and North America. Ovintiv is the next century, CPR began to expand rapidly. In currently focused on drilling in the condensate-rich 1958, CPR created Canadian Pacific Oil and Gas to regions of the Montney and has a ~25% liquids share. manage its properties, which later merged with Central-Del Rio Oils in 1971 to form Pan Canadian Andarko: The Anadarko Basin is located in west-central Petroleum Limited. Oklahoma and is a liquids-rich resource play. Ovintiv currently has ~360,000 net acres of production area, In 2003 Pan Canadian Petroleum Limited merged with with the majority in the black oil windows of SCOOP Alberta Energy Co., a former Alberta Crown and STACK. Corporation and Canada’s largest natural gas producer at the time. The merger was valued at $23B and The Permian: The Permian Basin is one of the largest created EnCana Corp. known oil deposits in the U.S. with multiple oil- saturated rock benches. Ovintiv’s acreage in the In 2009, EnCana, which at the time was the largest oil Permian is located in the oil-rich Midland Basin, Texas. and gas producer in Canada, was split into Encana and Cenovus, two separate entities with specific interests in natural gas and crude oil, respectively. Today, Cenovus EXHIBIT I trades on the NYSE and TSX, and has total enterprise value of $22.6B. Production Mix as of Q3 2019

In January of 2020, Encana undertook a corporate rebranding, moving its corporate headquarters to Denver, Colorado and renaming itself as Ovintiv Inc. Although the E&U team does not strictly believe the 29% move was harmful to the corporation, the reasoning for doing so, considering CEO Doug Suttles is a Denver 46% native and formerly lived in the city, has made many institutional investors question his decision.

Overview

Today, Ovintiv is a leading North American energy 25% producer focused on developing its multi-basin portfolio of oil, NGL, and natural gas producing plays. Currently the company has a production split of 29% oil, 25% NGLs, and 46% natural gas. Within this Oil NGLs Natural Gas portfolio, almost all oil is drilled in the US while NGL Source(s): Company Filings

3 February 1, 2020 Encana Revisited

Investment Thesis Revisited

Brief II: The Move Away from Natural Gas

On January 15th of 2018, the E&U team presented its The E&U team explained that the incremental natural investment memo on Ovintiv, which was known at the gas supply from the United States paired with time as Encana. The team concluded that “Encana has infrastructure bottlenecks and political uncertainty in successfully repositioned itself by transitioning to a Canada, has reduced the merits of investing in highly disciplined capital allocation approach, while Canadian natural gas. As such, Encana’s shift from a focusing on developing top tier assets and disciplined natural gas weighted company to a more crude oil debt management.” focused ‘liquids’ company will create value for shareholders. Further, diversification will “limit The thesis that informed this conclusion are as follows: downside of an adverse Canadian natural gas market.”

I: Underappreciated Resource Play: III: Neglected San Juan Opportunity

The E&U team argued that ECA’s exposure to the In early 2018, Encana began the production of assets it Permian basin compares favorably to its Canadian owned near San Juan, New Mexico. While these assets large cap peers who operate in the oil sands. Greater were primarily natural gas, preliminary research operational efficiency and higher netbacks will drive discovered crude oil of similar quality to that produced ECA’s operational statistics and attract investment in the Permian basin region. An NPV of the potential from Canadian energy investors looking to circumvent incremental crude oil determined Encana’s stake was the unfavorable macro environment in Canada. worth approximately one billion US dollars. As such, Additionally, the team contented that U.S. energy the E&U team concluded that investors were investors unfamiliar with the Montney region will find overlooking the potential upside of ECA’s San Juan the region’s comparatively high risk-adjusted returns assets. and WTI-based pricing attractive.

EXHIBIT II

Historical and Forward Capex Distribution

$3,000

$2,000

$1,000

$0 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Canadian Assets US Assets Other

Source(s): Company Filings, QUIC Projections

4 February 1, 2020 Encana Revisited

Investment Thesis Revisited

EXHIBIT III

E&U’s Circle of Competence

What we might know

What we know Thesis II

Thesis III Predicting Energy Prices Capital Allocation Asset Quality Capital Structure Predicting Geopolitics Macroeconomics Management Trends in E&U Risk Predicting Other Investors’ Perceptions of Value

Thesis I

What we know we don’t know

Circle of Competence the worthiness of an investment using these determinants would be uninformed speculation. Since its inception, QUIC’s E&U fund has prided itself on investing using analysis that can be completed Thus, E&U continues to focus its research on within the team’s circle of competence. investment opportunities where a businesses’ capital allocation strategy, capital structure, management, or For E&U, the circle of competence can be defined as 1) relative risk are at question. Recent examples include something that the team fully understands and has the the team’s buy pitch on the overindebted Crescent potential to exhibit expertise in, and 2) something that Point Energy and sell pitch on Parex Resources (given can be measured and used to determine value or risk the unreasonable anticipated returns on its invested in future periods. Given the team’s background in capital). corporate finance and valuation, E&U believes its core competencies are measuring the quality of capital Aside allocation and management, and the relative risks associated with capital structure and operations. It is important to note that this approach to investing, if successfully executed, will yield risk-adjusted returns Investors with backgrounds or expertise in mining and in excess of a benchmark (alpha), but not necessarily E&U operations have an inherit analytical advantage in positive returns; this is because the team’s circle of measuring asset quality, while economists are more competence is only a single determinant of value. As likely to excel in predicting long-term changes in such, E&U evaluates its performance with reference to supply, demand, and pricing. To attempt to evaluate the broader performance of equities in its industry.

Source(s): QUIC Research

5 February 1, 2020 Encana Revisited

Investment Thesis Revisited

EXHIBIT IV

E&U’s Circle of Competence

What we might know

What we know Thesis II

Thesis I

What we know we don’t know

Thesis I & II this is a poor argument as 1) the consensus at the time of this report and today is that the Canadian natural Given this approach, it is clear E&U’s original thesis I gas industry will continue to face headwinds (i.e. this is and II were based on research far outside the scope of not a non-differentiated perspective), 2) Ovintiv’s area the team’s competencies: of expertise is not US-based crude production, and 3) diversification creates zero shareholder value in Thesis I argued that Canadian investors will appreciate moderately efficient capital markets. the operating characteristics of assets in the Permian basin and choose to invest in Encana because of this. Thesis III This is a very clear example of attempting to predict other investors’ perceptions of values, and the Here, the E&U team took the differentiated argument also assumes that Canadian investors are perspective that Encana’s San Juan assets were restricted from investing in US-listed companies. significantly undervalued. Unfortunately, this thesis did Additionally, by this logic, Encana’s decision to re-list not play-out as in October of 2018 Encana sold these on the New York Stock Exchange would harm assets for $615M CAD, significantly less than the Canadian investors’ perception of value. calculated NPV of ~1B.

Thesis II argued that the Canadian natural gas industry In all, the E&U team believes none of its original thesis is becoming less attractive, and because of this, stand today. investors will reward Encana for investing heavily in the United States. Again, the current E&U team believes

Source(s): QUIC Research

6 February 1, 2020 Encana Revisited

Newfield Acquisition Explained

On February 13th, 2019, Encana completed its 1. Cost of Capital: Management’s all-equity acquisition of Texas-based Newfield Exploration (NYSE: purchase package (cost of equity = 18.9%) led NFX) in an all-stock transaction. As explained by Doug investors to doubt the financial feasibility of the Suttles, “[The] acquisition creates North America’s transaction. Note: despite management guiding premier resource company with large-scale positions for year one accretion, the deal continues to be in the core of the Permian, Anadarko and Montney.” dilutive on an EPS/FCF basis. The all-stock deal valued Newfield at approximately $5.5B and resulted in Encana shareholders assuming 2. Leverage: the assumption of Newfield’s debt $2.2B of pre-existing Newfield debt. pushed Encana’s Net Debt/EBITDA north of 2.0x, which is a leverage limit standard in E&U. Post-transaction, Encana shareholders owned approximately 63.5 percent of the combined company 3. Unfocused Corporate Strategy: the transaction and Newfield shareholders owned the remaining 36.5 proved to investors that management is set on percent. The deal increased oil and condensate becoming a large US-based crude/condensates production by over 50% and proved oil reserves by producer, which is concerning given ECA’s 85%. Additionally, management guided $250M in expertise is in the natural gas space. annual synergies as a result of overhead savings and operational efficiency improvements. The transaction 4. Trust in Management: the transaction was a was a purposeful step in diversifying Encana from surprise for investors who had been repeatedly natural gas and the Canadian market promised Encana would focus on disciplined operations, cost cutting, and returning capital to The deal was terribly received by investors and the shareholders; not megamergers. E&U team for several reasons:

EXHIBIT V

Historical & Projected Production (Mboe/d)

300

200

100

0 2017 2018 2019 2020 2021 2022 2023 2024 2025

Montney Duvernay Eagle Ford Permian Williston

Source(s): Company Filings, QUIC Projections

7 February 1, 2020 Encana Revisited

Valuation and Conclusion

Given that E&U no longer has outstanding thesis for outputs for the Newfield assets acquired in 2019. Then, Encana, the team believes the company is only worthy the team looked to project commodity prices and of investing in if its common equity trades at a decided on a continued 2% growth rate on 2019A tremendous discount to intrinsic value. To determine energy prices, which was significantly lower than this, E&U completed a NAV/DCF valuation model industry energy consultants’ estimates, yet more driven by the company’s capital allocation schedule. aggressive than futures forecasts. Given the team’s emphasis on investing only within its circle of First, E&U estimated forward production values using competence, this middle of the road approach is most management guidance, equity research, and projected appropriate. (See: Page 8)

EXHIBIT VI

Forward Production Values

Production 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Montney Liquids (Mbbls/d) 19.3 41.7 51.9 51.0 54.0 59.0 61.0 63.0 62.0 Montney Natural Gas (MMcf/d) 644.0 894.0 923.0 897.0 922.0 985.0 1001.0 1011.0 1021.0 Montney Total (Mboe/d) 126.6 190.7 205.7 200.5 207.7 223.2 227.8 231.5 232.2

Duvernay Liquids (Mbbls/d) 9.8 7.9 8.0 8.2 7.5 7.3 9.6 11.2 13.4 Duvernay Natural Gas (MMcf/d) 64.0 59.0 54.0 52.1 51.0 54.0 68.0 71.0 82.5 Duvernay Total (Mboe/d) 20.5 17.7 17.0 16.9 16.0 16.3 20.9 23.0 27.2

Additional Canadian Oil (Mbbls/d) 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Additional Canadian Natural Gas (MMcf/d) 130.0 54.0 54.0 54.0 54.0 54.0 54.0 54.0 54.0 Additional Canadian Total (Mboe/d) 22.1 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0

Total Canadian Liquids (Mbbls/d) 29.5 49.6 59.9 59.2 61.5 66.3 70.6 74.2 75.4 Total Canadian Natural Gas (MMcf/d) 838.0 1007.0 1031.0 1003.1 1027.0 1093.0 1123.0 1136.0 1157.5 Total Canadian Production (Mboe/d) 169.2 217.4 231.7 226.4 232.7 248.5 257.8 263.5 268.3

Eagle Ford Liquids (Mbbls/d) 39.0 36.8 32.4 29.2 33.4 32.5 33.2 32.6 33.2 Eagle Ford Natural Gas (MMcf/d) 51.0 52.0 38.3 33.6 40.3 39.4 37.6 38.5 39.6 Eagle Ford Total (Mboe/d) 47.5 45.5 38.8 34.8 40.1 39.1 39.5 39.0 39.8

Permian Liquids (Mbbls/d) 55.0 78.1 84.7 92.7 96.2 101.4 106.8 107.2 111.8 Permian Natural Gas (MMcf/d) 67.0 86.0 93.2 106.6 124.5 141.9 153.5 160.4 160.3 Permian Total (Mboe/d) 66.2 92.4 100.2 110.5 117.0 125.1 132.4 133.9 138.5

Williston Liquids (Mbbls/d) 28.3 29.1 28.6 27.7 26.4 19.9 14.8 Williston Total (Mboe/d) 0.0 0.0 28.3 29.1 28.6 27.7 26.4 19.9 14.8

Andarko Liquids (Mbbls/d) 98.2 101.0 99.2 96.1 91.6 69.1 51.4 Andarko Natural Gas (MMcf/d) 333.2 337.4 341.3 332.5 323.4 315.4 311.8 Andarko Total (Mboe/d) 0.0 0.0 153.7 157.2 156.1 151.5 145.5 121.6 103.3

Additional US Liquids (Mbbls/d) 5.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Additional US Natural Gas (MMcf/d) 148.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 Additional US Total (Mboe/d) 30.3 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8

Total US Liquids (Mbbls/d) 99.6 118.5 247.2 255.6 261.0 261.3 261.6 232.4 214.8 Total US Natural Gas (MMcf/d) 266.0 151.0 477.7 490.6 519.1 526.8 527.5 527.3 524.7 Total US Production (Mboe/d) 143.9 143.7 326.8 337.3 347.6 349.1 349.5 320.2 302.2

Total Liquids (Mbbls/d) 129.1 168.1 307.1 314.8 322.5 327.6 332.2 306.6 290.2 Total Natural Gas (MMcf/d) 1104.0 1158.0 1508.7 1493.7 1546.1 1619.8 1650.5 1663.3 1682.2 Total Production (Mboe/d) 313.1 361.1 558.5 563.7 580.2 597.6 607.3 583.8 570.5

Source(s): Company Filings, J.P. Morgan, RBC Capital Markets

8 February 1, 2020 Encana Revisited

Valuation and Conclusion

Realized sale prices were set equal to the previously Netback figures were calculated using both mentioned projected energy prices, and the Canadian management guidance and equity research data. Then, differentials for WTI, Edmonton Par, and AECO were the team calculated Optimization Revenues, which aligned with equity research consensus figures. were projected to have a 10% margin above Purchased Products Cost. The line items of Risk Next, E&U combined its production estimates and Management, Divestitures, and Other Gains/Losses realized pricing estimates with historical netbacks to were projected as $0 for all future periods. (See: Page determine future netbacks for 2019E – 2023E. 10)

EXHIBIT VII

Pricing, Differential & Netback Assumptions

Blended Average 2018A 2019A 2020E 2021E 2022E 2023E Brent $71.5 $64.1 $66.6 $69.3 $72.1 $74.9 WTI $64.7 $57.0 $59.3 $61.7 $64.1 $66.7 NYMEX $3.1 $2.5 $2.6 $2.7 $2.8 $3.0 Edmonton Par $68.9 $69.0 $71.8 $74.6 $77.6 $80.7 AECO $1.5 $1.8 $1.9 $2.0 $2.0 $2.1

Sales Prices 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E

Canadian Average Sales Prices Liquids ($/bbl) $32.61 $45.30 $48.08 $46.95 $48.83 $50.78 $52.81 $54.92 Natural Gas ($/Mcf) $1.77 $2.16 $2.24 $1.96 $2.04 $2.12 $2.21 $2.30

Canadian Benchmark Prices WTI $43.35 $50.94 $64.75 $57.02 $59.30 $61.67 $64.13 $66.70 Edmonton Par $52.94 $62.34 $68.85 $69.01 $71.77 $74.64 $77.63 $80.73 AECO $2.18 $2.19 $1.54 $1.81 $1.88 $1.95 $2.03 $2.11

Canadian Differentials WTI ($10.74) ($5.64) ($16.67) ($10.07) ($10.47) ($10.89) ($11.32) ($11.78) Edmonton Par ($20.33) ($17.04) ($20.77) ($22.06) ($22.95) ($23.86) ($24.82) ($25.81) AECO ($0.41) ($0.03) $0.71 $0.16 $0.16 $0.17 $0.17 $0.18

US Average Sales Prices Liquids ($/bbl) $32.84 $42.74 $55.03 $46.49 $48.35 $50.29 $52.30 $54.39 Natural Gas ($/Mcf) $2.29 $3.03 $2.28 $2.23 $2.32 $2.41 $2.51 $2.61

US Benchmark Prices WTI $43.35 $50.94 $64.75 $57.02 $59.30 $61.67 $64.13 $66.70 NYMEX $2.55 $3.02 $3.07 $2.53 $2.63 $2.74 $2.85 $2.96

US Differentials WTI ($10.51) ($8.20) ($9.72) ($10.52) ($10.94) ($11.38) ($11.83) ($12.31) NYMEX ($0.26) $0.01 ($0.79) ($0.30) ($0.31) ($0.32) ($0.34) ($0.35)

Source(s): GLJ Petroleum Consultants, Sproule, Company Filings

9 February 1, 2020 Encana Revisited

Valuation and Conclusion

E&U then calculated the costs associated with the Capex is estimated to be primarily funded with company’s production growth by creating a capital internally generated free-cash-flow, and as such, the expenditure schedule which relied on figures provided company’s leverage is expected to decrease in the by management, equity research, and internal research coming years as bonds expire. (See: Debt Schedule) of assets’ reserve values. It is important to note that most of Ovintiv’s capital expenditures will be used to increase crude oil reserves in the southern United States.

EXHIBIT VIII

Capex Schedule, Debt Schedule, & Netback and Free Cash Flow

Netback and Free Cash Flow 2018A 2019E 2020E 2021E 2022E 2023E Realized Price $31.86 $31.14 $32.70 $33.92 $34.98 $36.33 Impact of Hedging ($0.77) $1.81 $0.51 - - - Production and Mineral Taxes ($1.11) ($1.24) ($1.24) ($1.19) ($1.21) ($1.23) Transportation and Selling ($7.25) ($6.43) ($6.35) ($6.30) ($6.37) ($6.42) Operating Expenses ($3.10) ($3.34) ($3.31) ($3.29) ($3.33) ($3.35) Administrative ($1.18) ($1.50) ($1.80) ($1.89) ($2.01) ($1.99) Netback $18.45 $20.44 $20.51 $21.25 $22.06 $23.34

Capital Expenditure Assumptions 2018A 2019E 2020E 2021E 2022E 2023E Montney $516.00 $342.00 $363.00 $396.00 $422.00 $422.00 Duvernay $141.00 $105.00 $87.00 $91.00 $83.00 $172.00 Eagle Ford $394.00 $258.00 $205.00 $211.00 $211.00 $216.00 Permian $899.00 $871.00 $915.00 $775.00 $702.00 $775.00 Andarko - $716.00 $746.00 $740.00 $671.00 $671.00 Williston - $148.00 $131.00 $122.00 $129.00 $91.00 Canadian Infrastructure - $41.00 $65.00 $119.00 $122.00 $122.00 Canada Infrastructure - $37.00 $62.00 $118.00 $121.00 $121.00 Non-Core $14.00 $175.00 $186.00 $111.00 $111.00 $111.00 Other $11.00 $8.00 $9.00 $11.00 $11.00 $11.00 Capital/Finance Lease Obligations $90.00 $86.00 $87.00 $75.00 $0.00 $0.00 Total $2,065.00 $2,787.00 $2,856.00 $2,769.00 $2,583.00 $2,712.00

Debt Schedule 2019E 2020E 2021E 2022E 2023E 2024E 2025E Cumulative Debt $8,184.0 $8,184.0 $8,184.0 $7,584.0 $6,834.0 $6,834.0 $5,834.0 Principal Due $0.0 $0.0 $600.0 $750.0 $0.0 $1,000.0 $0.0

Source(s): RBC Capital Markets, Company Filings

10 February 1, 2020 Encana Revisited

Valuation and Conclusion

With a clear view of capital expenditure projections, In all, the deep discount implied by the DCF/NAV the E&U team was able to arrive at free cash flow after speaks to Ovintiv’s reliance on increased energy prices capital investments, i.e. unlevered free-cash-flow. After, to grow into its valuation. While the E&U team does Ovintiv’s cost of capital was calculated to be 18.9% acknowledge there is option value inherent in Ovintiv’s using a levered beta of 3.43, a risk-free-rate of 1.6%, very high operating leverage that cannot be quantified and an equity risk premium of 5.1%. The company’s using traditional valuation techniques, it still does not after-tax cost of debt is 4.5%. As such, Ovintiv has a feel comfortable investing in the company given the combined cost of capital of 12.9%, which accurately tremendous downside potential at anticipated energy reflects the company’s business-specific and leverage prices. Additionally, the team believes management risk. Then, the team discounted its projected six-year has shown itself incapable of appropriately investing unlevered free-cash-flow and a zero-growth terminal shareholders’ capital or reliably returning capital to value perpetuity. Together, E&U arrived at an implied shareholders. enterprise value of $8.59B and an implied equity value of $0.42B (90% downside). As such, E&U will fully exit its position in Ovintiv.

EXHIBIT IX

Free Cash Flow After Capital Investments, WACC and Share Price Calculation

Unlevered Free-Cash-Flow 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2025E Operating Free Cash Flow $1,168.15 $2,160.81 $2,492.97 $2,761.20 $2,712.33 $3,090.36 $3,127.79 $3,190.89 Tax Expense $94.00 $453.77 $523.52 $579.85 $569.59 $648.98 $656.84 $670.09 Net Income $1,074.15 $1,707.04 $1,969.45 $2,181.35 $2,142.74 $2,441.39 $2,470.96 $2,520.80

DD&A $1,272.0 $1,845.0 $1,578.0 $1,605.0 $2,005.5 $2,036.1 $1,912.4 $1,924.8 Capital Expenditures $2,065.0 $2,787.0 $2,856.0 $2,769.0 $2,583.0 $2,712.0 $2,581.0 $2,627.0 U-FCF $281.2 $765.0 $691.4 $1,017.3 $1,565.2 $1,765.5 $1,802.4 $1,818.6 Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5 Discount Factor 1.06x 1.19x 1.34x 1.50x 1.69x 1.89x 2.13x PV of Cash Flows $721.85 $580.84 $760.86 $1,042.19 $1,046.56 $951.22 $854.48

WACC Calculation Cost of Debt 4.5% Cost of Equity 18.9% Risk-free rate 1.6% Levered Beta 3.43 Equity risk premium 5.1% WACC 12.3%

Equity Value Walk Down Implied Enterprise Value $8,590.17 Less: Total Debt $8,307.00 Add: Cash & Cash Equivelants $138.00 Implied Equity Value $421.17 FDSO 259.80 Implied Share Price $1.62 Current Share Price $15.59 Implied Premium (Discount) -90%

Source(s): RBC Capital Markets, Company Filings

11 February 1, 2020 Encana Revisited

References

1. Bloomberg 2. BMO 3. Capital IQ 4. Company Filings 5. J.P. Morgan 6. RBC 7. Scotiabank 8. The Globe and Mail