North American natural gas giant Encana Corp. saw its gas production drop 12% from a year ago, as well as its profits, as it turned off the spigot in its wide ranging gas-rich plays. A one-time hedging loss of $266 million and a nonoperating foreign exchange loss of $101 million reversed profits from a year earlier.
Encana produced about 2.877 Bcf/d in 1Q2013, versus 3.272 Bcf/d in the year-ago quarter. The company’s realized gas price was $3.86/Mcf, down from $4.58 in 1Q2012, while New York Mercantile Exchange prices in 1Q2013 averaged $3.34, versus $2.74 a year ago.
Encana’s liquids output, 48% higher year/year, averaged 43,500 b/d in the latest period, with a realized price of $69.45/bbl, while West Texas Intermediate (WTI) prices averaged $94.36. A year ago Encana’s realized liquids price was $83.77/bbl, versus WTI’s $103.03.
Net losses in the first period totaled $431 million (minus 59 cents/share), compared with year-ago net gains of $12 million (2 cents). Operating profits were down 25% to $179 million (24 cents/share) from $240 million (33 cents), but they still beat Wall Street’s consensus estimate. Revenue fell to $1.06 billion from $1.8 billion.
“While we are adding diversity to our commodity and cash flow mix, Encana’s primary business is natural gas, and we will succeed over the long term by striving to improve capital efficiency and lower costs across our portfolio of assets,” said interim CEO Clayton Woitas. “Our focus remains on reducing costs and increasing our profitability. Through the first quarter we identified several areas where we can become more efficient in our business. We expect the cost reduction efforts we’ve made at the beginning of this year to have an impact on our financial results during the second half of the year.”
Although Encana’s primary focus is gas, it continued to add to its oil and liquids-rich reserves in the first quarter. The company expects that total liquids production will increase to 70,000-75,000 b/d by the end of 2013 from 37,000 b/d at the end of 2012, with growth driven by the Peace River Arch, Jonah, Piceance, Denver-Julesburg Basin and Bighorn. The projected growth only includes minimal volumes from the portfolio of emerging plays.
“Until our emerging plays are proven to be commercial, we are taking a conservative approach to forecasting volume growth,” said Woitas. “That being said, we have taken some positive strides in the development of our emerging plays this quarter.”
Management said cost efficiencies should help to recover the losses in the second half of this year. Encana had hedged about 1.52 Bcf/d of expected April-to-December 2013 output as of March 31 at prices of $4.39/Mcf. It hedged 1.5 Bcf/d of 2014 production at $4.19, and 825 MMcf/d of 2015 output at $4.37. In addition, Encana has hedged 15,000 b/d of expected April-December 2013 oil production at a WTI equivalent price of $98.08/bbl, and 5,800 b/d of expected 2014 oil production at $93.80.
The board’s selection committee has drawn up a short list of external and internal candidates for a new president and CEO, and interviews are under way. The search is expected to be completed by the end of June. Once the new CEO is in place, board Chairman David O’Brien plans to step aside and Woitas would take over as chairman. CEO Randy Eresman resigned in January.
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