UPDATE 2-EnCana sticks to breakup plan, despite warnings

(Recasts to add EnCana response, closes shares)

By Scott Haggett

CALGARY, Alberta, Oct 10 (Reuters) - EnCana Corp (ECA.TO: Quote, Profile, Research, Stock Buzz) said on Friday it still plans to split itself in two early next year, despite analyst warnings that the transaction may need to be abandoned because of the financial meltdown.

Alan Boras, a spokesman for EnCana, Canada's biggest oil and gas concern, said the company expects to go ahead with the split into natural gas and oil sands arms despite the credit crunch and a plunge in its stock price.

"We are continuing with our plans ... but recognize there is a great deal of uncertainty in the financial markets," Boras said. "EnCana's management and board of directors will act in the best interests of the company's shareholders."

EnCana announced its plans to spin off its natural gas operations in May, arguing then that the break-up would boost the value of the two businesses by turning them into more focused and easily evaluated entities.

But analysts say the company needs to rethink the transaction.

Phil Skolnick, an analyst at Genuity Capital, said the split into smaller firms would make raising capital more expensive for both companies.

"As of today, with the way that the credit market is, there's higher cost of capital, so why do it?" he said. "I don't think investors would probably vote for it right now if they knew that."

Skolnick said the odds of EnCana completing the split have dropped from a dead certainty just two weeks ago to just 50-50, as capital becomes more costly and the company's stock drops.

William Lacey, an analyst at FirstEnergy Capital, said the credit crunch and low stock prices would leave the oil sands operation vulnerable to a quick takeover if spun off.

"In this market the access to credit is very, very limited and the oil sands in particular require that access to grow the business," Lacey said. "And the oil sands is a great asset and it could be poached for nowhere near what it is worth."

EnCana shares have fallen by 53 percent since it announced the split in May. They fell C$6.39 to C$43.50 on Friday on the Toronto Stock Exchange as the shares of Canadian energy companies plunged on a 10 percent drop in oil prices.

EnCana shareholders are expected to vote on proposed split in mid December, a month after the company mails out an information circular on the transaction. The split is scheduled to be wrapped up early next year.

The natural gas business will keep the EnCana name while the oil sands operation, which includes its refining and production joint venture with ConocoPhillips (CVX.N: Quote, Profile, Research, Stock Buzz), was recently named Cenovus Energy Inc.

Cenovus would get about one-third of EnCana's assets. ($1=$1.17 Canadian) (Additional reporting by Jeffrey Jones; editing by Rob Wilson)