Encana CEO insists company is not for sale
Eresman says stock is undervalued
Encana Corp. signalled Wednesday i t will continue to pursue joint venture deals and sell assets this year while building a $3-billion cash war chest to survive persistently low natural gas prices.
But the president and chief executive of Canada’s largest gas producer insisted the company itself is not for sale, despite a share price that has fallen by almost 50 per cent since last May.
“I believe the . . . value of the company is not reflected by the stock price,” Randy Eresman said on a conference call with analysts and reporters.
“We will demonstrate, if we need to, one play at a time, how much value exists in this company. And we believe it to be a great deal more than what the market reflects.”
Encana has sold billions of dollars of assets in the past year or so.
Last week it struck a deal to trade a one-third royalty in an Alberta coal bed methane field to Japan’s Toyotatsusho Corp. for $602 million over seven years and, in February, it made a five-year, $2.9-billion deal with Mitsubishi Corp. for 40 per cent of its undeveloped Cutbank Ridge property in northeastern British Columbia.
It has also recently signed two smaller joint venture deals with partners in its Jonah liquids-rich gas field in Wyoming.
Two other deals are expected to be done this year — Encana is seeking a joint venture partner on about 600,000 hectares of oil or liquids-rich natural gas plays in Canada and the U.S. and another to buy an additional 10 per cent stake in Cutbank Ridge.
Encana handily beat analyst expectations in first-quarter results Wednesday.
It noted cash flow of $1 billion US, or $1.39 per share, up six per cent from the first three months of 2011. A Bloomberg survey of analysts had sug- gested cash flow per share of $1.14.
It had net earnings of $12 million, a turnaround from a net loss of $361 million in the first quarter of 2011, and operating earnings were $240 million, or 33 cents per share, up 10 per cent.
Analyst Andrew Potter of CIBC World Markets conceded the company beat the Street in an early note headlined: “Naked Encana Is An Ugly Sight At Current Prices.”
He said the better-thanexpected cash flow was the result of hedging gains and a higher-than-anticipated cash tax recovery of about $134 million.
UBS analyst George Toriola pointed out Encana’s realized gas prices in Canada were 114 per cent of Alberta spot prices in Q1 2012 versus 103 per cent in the same quarter of 2011.
Encana reports all of its financials in U.S. dollars.
Its stock closed up four per cent or 71 cents at $18.36 in Toronto.
The shares have fallen three per cent this year — their 52-week high was $33.68 last May — as New York natural gas prices fell to a quarterly average that was lowest since 2001.
Encana credited its forward hedging program for allowing it to post better prices for gas, contributing $358 million in realized after-tax gains, or 49 cents per share.
However, Eresman said the company is not looking to add forward hedges for 2013 because it believes prices will start to rise by then.
“In the very short term, pricing could get worse than it is today as we continue to be oversupplied in North America,” he told shareholders at the annual general meeting on Wednesday afternoon.
“But, if you look forward, there are a number of events that give us optimism.”
He said the level of gas use in North America power plants rose from about three billion cubic feet per day to about seven bcf/d this winter as gas supplanted coal.
Meanwhile, he said, North American producers have shut in 0.8 to one bcf/d of production.
Encana said it also would chop gas output this year by 600 million cubic feet per day, including royalties, by shutting in wells and not investing to replace natural declines.
At the AGM, more than 75 per cent of investors approved Encana’s executive compensation policies in a non-binding vote, a steep drop from 91.2 per cent last year.
On the conference call, Eresman said Encana has identified the wells it will shut in, about two-thirds of which are in Western Canada, with the rest in the mid-continental U.S.
Encana produced 3.3 bcf/d of gas in the first quarter, up two per cent from the year-earlier period and down five per cent from the fourth quarter of 2011. Its year-over-year liquids production climbed 26 per cent to 29,300 barrels per day and is expected to average 28,000 bpd for the year.
The company signalled it would build its cash to about $3 billion by year-end from $2.4 billion as of March 31. It has debt worth about $1.5 billion coming due in 2013 and 2014.
It said it has drilled and completed three horizontal wells in the Duvernay, where it has about 150,000 net hectares and is employing two rigs, recovering “significant condensate volumes with favourable condensate to gas ratios.”