Calgary, Alberta-based exploration and production (E&P) company, Encana Corporation (ECA), reported better-than-expected third-quarter 2013 earnings. Substantial fall in total expenses along with significant hike in liquid output aided the results.
The company announced operating earnings per share (excluding one-time items) of 20 cents, comprehensively beating the Zacks Consensus Estimate of 15 cents.
However, comparing year over year, earnings decreased 44.4% from 36 cents per share (adjusted) owing to lower natural gas production.
Revenues (net of royalties) came in at $1,392.0 million, up 35.8% from the prior-year figure of $1,025.0 million. However, the results failed to beat the Zacks Consensus Estimate of $1,476.0 million due to reduced natural gas price realization.
Production & Prices
In the third quarter of 2013, natural gas production declined approximately 6.3% year over year to 2,723.0 million cubic feet per day (MMcf/d), primarily due to an 18.5% drop in volumes in the resource plays of the USA division. Encana's realized natural gas prices decreased approximately 18.5% year over year to $4.00 per thousand cubic feet (Mcf).
The company's oil and liquids production climbed 92.1% year over year to 58,200 barrels per day (Bbls/d), aided by a significant improvement in output from the resource plays of the USA and Canadian divisions. Encana sold oil at $90.42 per barrel, up 13.0% from the third quarter of 2012. However, realized price for natural gas liquids (NGL) was $46.35 per barrel, down 24.4% from the year-ago quarter.
Expenses
Encana reported total expenses of $1,253.0 million for this quarter, representing a year-over-year reduction of 56.1%.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $660.0 million or 89 cents per share against $913.0 million or $1.24 per share during the third quarter of 2012. The company drilled 166 net wells against 188 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $641.0 million (excluding acquisitions and divestitures). As of Sep 30, 2013, cash on hand was $3,258.0 million and long-term debt (including current portion) was $7,649.0 million, representing a debt-to-capitalization ratio of 58.6%.
Guidance
The company has lowered its expectation for full-year 2013 natural gas production to 2.7–2.8 billion cubic feet per day. However, Encana maintained its expected full-year 2013 liquid output at 50,000–60,000 barrels per day.
Encana reduced its full-year 2013 capital investment expectation to $2.7–$2.9 billion.
Zacks Rating
Encana 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.
Meanwhile, one can look at E&P firms like Bonanza Creek Energy Inc. (BCEI), Stone Energy Corp. (SGY) and Berry Petroleum Co. (BRY) that offer better prospects. Bonanza Creek Energy and Stone Energy sport a Zacks Rank #1 (Strong Buy) while Berry Petroleum carries a Zacks Rank #2 (Buy).
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