Edmonton Journal

Encana results better than expected.

CEO tells annual meeting he chatted with Notley after election

- Geoffrey Morgan

CALGARY — Following the NDP’s stunning election win in Alberta last week, as investors were dumping Canadian energy stocks in alarm, Alberta’s premier-designate Rachel Notley picked up the phone and called the top executive at Encana Corp.

Encana president and CEO Doug Suttles recalled at his company’s annual general meeting Tuesday what he told Notley: “If we can (provide) support, in any way, as you think about policy issues then we’d be happy to do that.”

Encana had seen its own share price buckle eight per cent the day after the NDP trampled the four-decadeold Progressiv­e Conservati­ve dynasty, and the S&P TSX Energy Index fell 2.75 per cent.

Both have since recovered, in part soothed by Notley’s assurances that she would ensure things were “A-OK” for the provincial energy sector. Suttles, however, would not say how the NDP’s stated plans to increase the corporate tax rate and to review royalty rates for oil and gas extraction would affect his company’s bottom line.

For now, Encana’s financial strength has been challenged by the collapsed price of oil — although not quite as severely as analysts had predicted.

Encana posted financial results for the first quarter Tuesday that beat analysts’ cash flow expectatio­ns, despite a $1.7 billion US net loss for the period. The loss was largely a result of $1.2 billion US in impairment charges following the collapse in oil prices.

Despite the impairment, National Bank Financial analyst Kyle Preston called Encana’s cash flow and production numbers a “strong beat” in a research note and added that Encana’s growing production and shrinking costs helped the company achieve the betterthan-expected results.

The company’s cash flow for the quarter was $495 million US, a 54-per-cent drop from roughly $1.1 billion US in the same period last year.

First Energy Capital Corp. analyst Michael Dunn said the results were slightly negative for Encana, partly because the company’s oil production had fallen “behind expectatio­ns.”

Since November 2013, Encana has been transition­ing from a gas to an oil producer. In the fourth quarter of 2014, it spent $7.1 billion US to acquire Athlon Energy Inc., an oil producer with extensive land positions in Texas’s Permian basin, to accelerate that transition.

But weather in Texas has prevented the company from growing oil production as quickly as it had anticipate­d. Its liquids production averaged 121,000 barrels per day in the first quarter, which was 5,000 bpd below analyst expectatio­ns, Dunn said.

During Encana’s first-quarter earnings call, Suttles said the company had sharpened its focus, dedicating 80 per cent of its spending to just four areas: the Montney and Duvernay shale gas plays in Alberta, and the Permian and Eagle Ford oil formations in Texas.

He said those four plays offered Encana better margins than the rest of the company’s portfolio.

The company shut in production from its Deep Panuke gas project off the coast of Nova Scotia, from which Encana has struggled to get consistent production. In the fourth quarter, Deep Panuke drew unexpected­ly large quantities of water to the surface as well as natural gas.

Encana now only plans to operate Deep Panuke, built at a cost of $1 billion, during the winter months when demand for natural gas in the northeaste­rn U.S. is high.

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 ?? Larry MacDougal/The Canadian Press ?? Doug Suttles, Encana’s president and CEO, takes part in the company’s annual general meeting on Tuesday in Calgary.
Larry MacDougal/The Canadian Press Doug Suttles, Encana’s president and CEO, takes part in the company’s annual general meeting on Tuesday in Calgary.

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