ENCANA CUTS 200 JOBS
Shares fall on ‘disappointing’ Q2 results
Encana Corp. is setting aside $58 million this year for transition and severance costs as it completes a reorganization that resulted in 200 job cuts in July on top of 1,200 cuts from its major refocusing effort in late 2013.
In its second-quarter financial results released Friday morning, it revealed it has already spent $30 million in the first six months of the year, with $28 million more to be paid out in 2015. It said it has spent another $125 million, mainly on severance, since late 2013, cutting staff from its then ranks of 4,000 employees and 900 contractors.
On a conference call, chief financial officer Sherri Brillon told investors overall job cuts have reached 1,400 since 2013. Spokesman Jay Averill later clarified that includes 1,200 earlier cuts and 200 in July. He said the current review is complete and no more cuts are expected.
The latest layoffs from the June total of 3,500 staff and contractors are part of an new restructuring round designed to allow Encana to thrive in any commodity price environment. Oil prices have fallen to less than $50 US per barrel since reaching $107 last summer.
Meanwhile on Friday morning, Encana shares plunged to their lowest level since the company was split in two to create Cenovus Energy Inc. in late 2009. They fell as low as $10.02, down $1.21, on financial results analysts called “disappointing,” before closing at $10.26. They had traded as high as $25.69 last August and exceeded $35 in early 2010.
Encana, which reports in U.S. dollars, revealed a $1.6-billion net loss for the three months ended June 30, slightly improving on a $1.7-billion loss in the first three months of the year. It noted an operating loss of $167 million and cash flow of $181 million.
Analysts said the company missed expectations on production, cash flow and debt reduction, while a $2.1-billion writedown on U.S. assets — bringing the total to $4 billion in the first half of 2015 — shows that it paid too much for its American acquisitions in 2014. The non-cash impairment charge was based on future commodity prices.
President and chief executive Doug Suttles emphasized encouraging operating results and a seventh quarter of liquids production growth on the call with analysts.
“We continue to improve well performance, lower costs and increase (drilling) inventory in our four strategic assets, the Permian, Eagle Ford, Duvernay and Montney,” he said.
“We exited the second quarter with significant operational momentum and we expect to accelerate liquids growth through the second half of this year. We are on track to achieve $375 million of operating and capital cost efficiencies by yearend and we believe about two-thirds of these savings will be sustainable in a higher price environment.”
In 2014, Encana reported secondquarter earnings of $271 million, operating earnings of $171 million and cash flow of $656 million.
In a morning note, analyst Kyle Preston of National Bank Financial highlighted a second-quarter cash flow miss of 22 cents per share versus consensus of 28 cents and a production miss of 389,000 barrels of oil equivalent versus his expectation of 397,000 boe/d and consensus of 403,000 boe/d.
“Overall, disappointing results given the production and cash flow miss and increasing debt levels, while the impairment charge is another reminder of the premium price paid for some of its U.S. assets last year,” he wrote.
Nick Lupick, an analyst for Alta Corp Capital, pointed out that most of the production shortfall was on the natural gas side — as the company shut-in East Coast Canada production at Deep Panuke to await better prices in winter and experienced pipeline outages from its Alberta Montney resource.
“Despite the fact that total production was below our forecast, the company’s liquids production was relatively in line with our expectations, averaging 127,300 bpd (up about 87 per cent year-over-year and five per cent sequentially) versus Alta Corp estimate of 129,700 bpd,” he wrote in a note.
Natural gas production fell 38 per cent to 1.57 billion cubic feet per day from 2.54 Bcf/d.
Encana said it will realize average operating margins of over $25 per boe in its four core regions even if oil remains at $50 per barrel and New York natural gas prices are $3 per million British thermal units.
It forecasts 2015 cash flow of between $1.4 billion and $1.6 billion.