Canada's largest natural gas producer
Encana Corporation
(
ECA
) reported mixed second quarter 2012 results, primarily reflecting
higher liquids volumes and reduced operating costs, partially
offset by lower price realizations.
The company announced operating earnings per share (excluding
one-time items) of 27 cents, beating the Zacks Consensus Estimate
of 19 cents. However, comparing year over year, earnings fell 43.8%
from 48 cents.
Revenues (net of royalties) came in at $731 million, down 63.2%
from the prior-year figure of $1,986 million. The result also
failed to meet our estimate of $1,404 million.
Production & Prices
Natural gas production declined approximately 15.3% year over year
to 2,802 million cubic feet per day (MMcf/d), primarily due to a
15.9% drop in volumes from key resource plays. Encana's realized
natural gas prices during the quarter decreased approximately 5.9%
year over year to $4.79 per thousand cubic feet (Mcf).
Meanwhile, the company's oil and liquids production climbed 16.7%
to 28,000 barrels per day (Bbls/d), aided by a 7.0% improvement in
output from key resource plays. Encana's oil and other liquids were
sold for $80.32 per barrel, down 13.3% from the second quarter of
2011.
Cash Flows and Drilling Statistics
Encana - North America's second largest producer of natural gas,
behind
Exxon Mobil Corporation
(
XOM
) - generated cash flows from operations of $794 million or $1.08
per share, as against $1,089 million or $1.48 per share during the
June quarter of 2011. The company drilled 85 net wells during the
quarter, as against 145 in the prior-year period.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $797 million
(excluding acquisitions and divestitures). As of June 30, 2012,
Encana had cash on hand of $1,874 million and long-term debt of
$7,657 million, representing a debt-to-capitalization ratio of
52.8%.
Guidance
For 2012, Encana expects liquid output to be around 30,000 barrels
per day, up 7% from the earlier projection. The company also
targets to invest an additional $600 million in capital project
during the second half of 2012.
Encana expects this increased investment to generate average daily
liquid production of 60,000 barrels to 70,000 barrels per day.
Rating & Recommendation
We are maintaining our long-term Neutral recommendation on Encana,
supported by a Zacks #3 Rank (short-term Hold rating).
Encana possesses a high-quality, low-cost asset base in some of the
best gas plays in Canada and the U.S. Mature plays with stable
production, such as Jonah and Greater Sierra, nicely complement the
company's high potential growth areas such as Haynesville, Montney
and Horn River. We also appreciate Encana's disciplined approach
toward capital investment and project execution.
However, the current unfavorable macro backdrop is expected to
continue to offset the positives, at least in the near term. The
growing popularity of renewable sources of energy, challenging
market prices and cost inflation are other major areas of concern.
ENCANA CORP (ECA): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis
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