Encana story
All options on table for new chief executive
Encana Corp. will reduce staff in offices and in the field to cut costs while trimming capital spending this year as it continues to work out future strategy, investors heard Wednesday.
Analysts hoping to learn more about new chief executive Doug Suttles’ plans for the company heard on a conference call to discuss second-quarter results that all options are on the table — “other than we’re not going to get out of the oil and gas business.”
Canada’s largest natural gas producer has been hard hit by low gas prices in the past few years and has been trying to preserve its balance sheet by starving dry gas investment and increasing its production of oil and natural gas liquids.
Suttles, the former chief operating officer at BP Exploration and Production, was named as president and CEO six weeks ago and said Wednesday an internal Encana team has been named to deliver a strategic plan with the help of outside consultants by year-end.
Encana reports its results in U.S. dollars.
Chief financial officer Sherri Brillon noted on the call that in the first half of 2013 the company has reduced its staff count by seven per cent through voluntary and “managed attrition” and it aims to save $100 million to $150 million per year in general and administrative and operating costs.
Suttles said in an interview with the Herald later there are no plans for a general round of layoffs. “What we’re looking at is being very thoughtful about when we backfill those positions, particularly until we come out with our strategy and know what the future looks like,” he said.
“I think it will end up greater (than seven per cent) by the end of the year but we have not set a target.”
Suttles said management has meanwhile identified $300 million in potential savings from the 2013 capital budget of $3.0 billion to $3.2 billion and spending is now expected to come in at the lower end of the range.
“We decided to exercise those options to the tune of about $90 million and return the rest to the balance sheet,” he said.
The company beat analyst expectations on cash flow and operating earnings — both affected by lower commodity prices — and met forecasts on production.
It reported cash flow of $665 million or 90 cents per share compared with $794 million or $1.08 in the same period a year ago, while operating earnings rose to $247 million or 34 cents per share from $198 million or 27 cents in second quarter 2012.
Net earnings were $730 million, buoyed by unrealized hedging gains. A year ago, a gigantic asset writedown of $1.7 billion dropped net earnings to $1.5 billion.
Encana production of oil and liquids jumped 69 per cent to 47,600 barrels per day while natural gas output fell one per cent to 2.76 billion cubic feet per day.
Its realized gas price fell to $4.17 per thousand cubic feet from $4.79 and its average liquids price was $68.25, a 15 per cent drop from $80.32.
Michael Dunn, an analyst for FirstEnergy Capital, said Encana beat expectations financially due to natural gas price realizations.
“However the street was hoping for better sequential liquids growth,” he wrote in a morning note.
Analyst Greg Pardy of RBC Capital Markets pointed out that a reported cash tax recovery of $60 million was better than his estimate of $8 million.
The company reported raising a net $650 million from asset sales in the first half of 2013, achieving its 2013 target of $500 million to $1 billion.
Most of the return came from selling its interest in the Kitimat LNG project in the first quarter and its Jean Marie gas field in northeastern B.C. in the second. It did not release specific prices for either.
Encana confirmed that David O’Brien, chairman since 2002, is being replaced by Clayton Woitas as expected but will remain on the board.
Woitas filled in as CEO after Randy Eresman suddenly left the position in January.