Natural gas exploration and production (E&P) company,
) reported mixed first-quarter 2013 results, primarily reflecting
better drilling activities at prime areas such as the Peace River
Arch region and Clearwater area. These were partially offset by
low natural gas volumes and hedging loss.
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The company announced operating earnings per share (excluding
one-time items) of 24 cents, comprehensively beating the Zacks
Consensus Estimate of 4 cents. Comparing year over year, earnings
fell 27.3% from 33 cents.
Revenues (net of royalties) came in at $1,059 million, down 41.1%
from the prior-year figure of $1,799 million. The results also
failed to beat the Zacks Consensus Estimate of $1,324 million.
Production & Prices
In the first quarter of 2013, natural gas production declined
approximately 12.1% year over year to 2,877 million cubic feet
per day (MMcf/d), primarily due to a 18.2% drop in volumes in the
resource plays of the USA division. Encana's realized natural gas
prices decreased approximately 15.7% year over year to $3.86 per
thousand cubic feet (Mcf).
The company's oil and liquids production climbed 48.5% year over
year to 43,500 barrels per day (Bbls/d), aided by a 93.1%
improvement in output from the resource plays of the USA
division. Encana's oil and other liquids were sold at $69.45 per
barrel, down 17.1% from the first quarter of 2012.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $579 million or 79
cents per share against $1,021 million or $1.39 per share during
the first quarter of 2012. The company drilled 174 net wells
against 207 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $715 million
(excluding acquisitions and divestitures). As of Mar 31, 2013,
cash on hand was $2,878 million and long-term debt (including
current portion) was $7,659 million, representing a
debt-to-capitalization ratio of 61.9%.
The company said that it expects full-year 2013 natural gas
production of 2.8-3.0 billion cubic feet per day and liquid
output of 50,000-60,000 barrels per day.
The company currently retains a Zacks Rank #3 (Hold), implying
that it is expected to perform in line with the broader U.S.
equity market over the next one to three months.
Encana is one of the largest natural gas companies in North
America with a diverse and high-quality portfolio of natural gas
assets spread over Canada and the U.S. This results in a huge
inventory of reserves and a resource base capable of robust
Additionally, we remain optimistic regarding the collaboration of
Encana and Mitsubishi in developing the Cutbank Ridge, which is
one of the most fertile and low-cost resource-rich acreages in
North America. With a large proved undeveloped natural gas
reserve, the region is expected to have the capacity of
delivering long-term, affordable energy supplies to the domestic
and overseas markets.
However, Encana's extensive natural gas exposure raises its
sensitivity to gas price fluctuations, compared to its more
diversified independent peers with higher oil production.
Meanwhile, there are some E&P companies that are expected to
significantly outperform the broader U.S. equity market over the
next one to three months. These include
Cheniere Energy Inc
EPL Oil & Gas Inc.
Range Resources Corporation
). All three firms sport a Zacks Rank #1 (Strong Buy).