Encana Corporation ECA has decided to slash its 2016 capital spending budget by 25% from this year. The Calgary, Alberta-based oil and gas explorer also announced plans to lower its 2016 annual dividend by more than 78%. The announcements were not unforeseen as the company has been hit hard by the persistent weakness in oil price. Following the announcement, Encana fell more than 8% on the NYSE.
The company’s projected 2016 capital budget is in the range of $1.5 billion and $1.7 billion. Most importantly, the majority of the amount will be allocated toward four key oil and natural gas properties that comprise the Montney and Duvernay shale fields in Canada and the Eagle Ford and Permian shale resources in the U.S.
It is to be noted that Encana is not the only player that has slashed its capital spending amid the oil price slump. Last week, U.S. energy giant Chevron Corporation CVX also announced a sharp reduction in its 2016 capital spending budget.
Coming back to Encana, the company added that its 2016 total production will likely be between 340,000 and 370,000 barrels of oil equivalent every day (BOE/D) – which is higher by 12% from the 2015 level. In fact, out of 2016 overall production, 260,000 to 280,000 BOE/D output will likely be from the core asset plays.
Management revealed that by allocating the maximum spending toward the core resource plays’ drilling and completion operations, the company will go on earning significant margins through 2016.
As already mentioned, Encana may even trim its dividend. The company expects 2016 annual dividend to be 6 cents per share as compared to 28 cents in 2015. In fact, this cut is anticipated to save about $185 million per year.
Encana is a focused pure-play natural gas exploration and production company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays.
The company currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, some better-ranked players in the energy sector are Energy Transfer Equity LP ETE and Boardwalk Pipeline Partners, LP BWP. Both these stocks sport a Zacks Rank #1 (Strong Buy).
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