Calgary, Alberta-based natural gas exploration and production (E&P) company, Encana Corporation (ECA), reported lower-than-expected third-quarter 2014 earnings owing to lower natural gas volumes in the U.S. and Canadian resource plays. The negatives were partially offset by decreased operating expenses and higher liquid production.
The company announced operating earnings per share (excluding one-time items) of 38 cents, which failed to beat the Zacks Consensus Estimate of 50 cents. The bottom line, however, jumped 90% from the year-ago adjusted profit of 20 cents per share.
Revenues (net of royalties) came in at $2,285 million, surging 64% from the prior-year figure of $1,392 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $1,721 million.
Production & Prices
In the third quarter, natural gas production declined approximately 19% year over year to 2,199 million cubic feet per day, primarily due to a drop in production volumes in resource plays of the USA and Canadian divisions. Encana's realized natural gas prices were $4.03 per thousand cubic feet, almost the same as the year-ago quarter.
The company's oil and liquids production climbed 79% year over year to 1,04,000 barrels per day, aided by a significant improvement in output from the resource plays of the USA and Canadian divisions. Encana sold oil at $90.22 per barrel, down marginally from $90.42 per barrel during third-quarter 2013.
Operating Expenses
Encana – which has been restructuring its portfolio to focus more on oil producing resources owing to weak natural gas prices − reported operating cost of $190 million for this quarter, 7% less than the year-ago quarter.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $807 million or $1.09 per share against $660 million or 89 cents in the third quarter of 2013. The company drilled 98 net wells against 166 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $598 million. As of Sep 30, 2014, cash on hand was $6,974 million and long-term debt was $6,086 million, representing a debt-to-capitalization ratio of 39%.
Guidance
The company lowered its 2014 capital investment guidance to $2.5–$2.6 billion from the previous projection of $2.6–$2.7 billion.
Encana expects 2014 total production in the range of 2,810–2,935 million cubic feet equivalent per day.
Zacks Rank
Encana currently carries 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 better-ranked players in the energy sector like Murphy USA Inc. (MUSA), Sandridge Mississippian Trust II (SDR) and Magellan Midstream Partners LP (MMP). Murphy USA and Sandridge Mississippian sport a Zacks Rank #1 (Strong Buy), while Magellan Midstream carries a Zacks Rank #2 (Buy).
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