(May 12) (Bloomberg) -- EnCana Corp., Canada's largest natural- gas producer, said it plans to split into two energy companies, one concentrating on gas and the other on oil in a bid to increase its value with crude at a record high.

Shareholders will receive one share in each of the new companies. The standalone oil division will manage EnCana's oil- sands projects in Alberta and its U.S. refineries, while the second company will focus on natural-gas holdings, Calgary-based EnCana said today.

Chief Executive Officer Randy Eresman, who will lead the gas company, is raising output from fields in the U.S., where drilling costs have risen less than in Canada. EnCana agreed in November to buy out its partner in an East Texas field for $2.55 billion, its largest acquisition since 2004.

``This is good: This is an avenue they said they'd explore if the market wasn't recognizing the value of the oil business within EnCana,'' said Jim Hall, who manages the equivalent of about $1 billion at Mawer Investment Management in Calgary, including 560,000 shares of EnCana. ``They are going to be two very good companies that can easily stand on their own.''

EnCana formed a joint venture with ConocoPhillips in 2007 to extract heavy oil from Alberta's oil sands and refine the crude, which has doubled in price in the past year to $125.96 a barrel.

The company's shares have risen 39 percent in the past year, while oil surged. EnCana derived about 83 percent of its daily production in the first quarter from gas fields, according to the company's Web site.

`Easier to Value'

``Ultimately, you'll be better off as a shareholder with each company having a lower cost of capital because they'll run more focused businesses that are easier to understand and value,'' Hall said.

In the statement today, EnCana revised higher its pre- transaction cash flow estimates for 2008 to a range of $9.6 billion and $10 billion. The company last month forecast cash flow of $8.8 billion.

``Individually, these two companies have the potential to shine even brighter when contrasted against their industry peer groups,'' EnCana's Eresman said today at a press conference in Calgary.

Brian Ferguson, EnCana's chief financial officer, will head the new oil company. The transaction is expected to be completed in early 2009, the company said.

Higher Valuations

``Pure-play companies haven't suffered holding-company discounts and have therefore attracted higher market valuations, so this should result in a higher overall valuation for EnCana,'' said Randy Ollenberger, an analyst at BMO Capital Markets in Calgary in an e-mail.

The gas company will increase production by 7 percent to 9 percent annually and the oil entity will boost output 4 percent to 6 percent, Eresman said during the press conference.

The new oil company will pay a ``meaningful'' dividend of three to four percent annually, Ferguson said at the conference.

In the venture with ConocoPhillips, EnCana traded half its reserves and production in two oil-sands projects in return for 50 percent stakes in two U.S. refineries owned and operated by ConocoPhillips.

EnCana, which has a market value of C$64.9 billion ($64.6 billion), will apply for reorganization through the Court of Queen's Bench in Alberta under the Canada Business Corporations Act. The split will require shareholder and regulatory approval.

EnCana was formed in April 2002 through PanCanadian Energy Corp.'s acquisition of Alberta Energy Co.

The proposed oil company assets represent about one-third of EnCana's current production and proved reserves. In 2007, revenue from the integrated oil operations was $7.9 billion of EnCana's total $21.4 billion for the year, the company said.

EnCana fell 96 cents to C$86.52 on May 9 on the Toronto Stock Exchange. The stock, which has 12 buy recommendations from analysts, 12 holds and one sell, has risen 28 percent this year.

(Editor: Shuomeng Wang)