Canada's largest natural gas producer
Encana Corporation
(
ECA
) reported mixed third-quarter 2012 results, primarily reflecting
better drilling activities at prime areas such as Peace River
Arch region, Bighorn and Cutbank Ridge acreages and Piceance
Basin. These were partially offset by depressing natural gas
picture and higher operating expenses.
The company announced operating earnings per share (excluding
one-time items) of 36 cents, beating the Zacks Consensus Estimate
of 25 cents. However, comparing year over year, earnings fell
32.1% from 53 cents.
Revenues (net of royalties) came in at $1,025 million, down 56.4%
from the prior-year figure of $2,353 million. The result also
failed to meet our estimate of $1,432 million.
Production & Prices
Natural gas production declined approximately 13.7% year over
year to 2,905 million cubic feet per day (MMcf/d), primarily due
to an 11.0% drop in volumes from key resource plays. Encana's
realized natural gas prices during the quarter decreased
approximately 2.0% year over year to $4.91 per thousand cubic
feet (Mcf).
Meanwhile, the company's oil and liquids production climbed 24.2%
to 30,300 barrels per day (Bbls/d), aided by a 19.2% improvement
in output from key resource plays. Encana's oil and other liquids
were sold for $72.17 per barrel, down 12.4% from the third
quarter of 2011.
Cash Flows and Drilling Statistics
Encana - which co-partners
Apache Corporation
(
APA
) and
EOG Resources Inc.
(
EOG
) in the Kitimat liquefied natural gas (LNG) export project -
generated cash flows from operations of $913 million or $1.24 per
share, as against $1,181 million or $1.60 per share during the
September quarter of 2011. The company drilled 188 net wells
during the quarter, as against 164 in the prior-year period.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $779 million
(excluding acquisitions and divestitures). As of September 30,
2012, Encana had cash on hand of $2,039 million and long-term
debt of $7,684 million, representing a debt-to-capitalization
ratio of 58.2%.
Guidance
For 2012, Encana expects liquid output to be around 30,000
barrels per day and natural gas volumes to be at 3.0 billion
cubic feet per day. The company also targeted to invest about
$3.5 billion in capital project during the year.
Recommendation
We are maintaining our long-term Neutral recommendation on
Encana. The company is one of the largest natural gas companies
in North America with a diverse/high quality portfolio of natural
gas assets spread over Canada and the U.S. This provides the
company with a huge inventory of reserves and a resource base
capable of robust production growth.
However, the current unfavorable macro backdrop is expected to
continue to offset the positives, at least in the near term.
Other areas of concern are the growing popularity of renewable
sources of energy, challenging market prices and cost inflation.
APACHE CORP (APA): Free Stock Analysis Report
ENCANA CORP (ECA): Free Stock Analysis Report
EOG RES INC (EOG): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research