Encana Corp., Canada’s largest natural gas producer, reported its first quarterly profit in more than a year as the company increased oil and petroleum liquids production.
Second-quarter net income was $730 million, or 99 cents a share, compared with a loss of $1.48 billion, or $2.01, a year earlier, the Calgary-based company said in a statement today. Excluding a hedging gain, tax benefits and a foreign currency loss, per-share profit was double the 17-cent average of 17 analysts’ estimates compiled by Bloomberg. Sales more than doubled to $1.98 billion from $731 million.
Encana is devoting 80 percent of its 2013 capital budget to almost doubling oil and liquids production while keeping gas output unchanged. Second-quarter gas output fell 1 percent from a year earlier while Encana’s oil and liquids production rose 69 percent to average 47,600 barrels a day. The company had its worst year in 2012 after writing down $2.89 billion on the declining value of its gas assets as prices hit a 10-year low.
Production missed analysts’ expectations by about 2.5 percent and most of the reason the company beat estimates for cash flow per share “is due to a tax recovery, which the market is unlikely to reward the company for,” Phil Skolnick, an analyst at Canaccord Genuity Corp. in New York, wrote in a note to investors today.
Spending for 2013 “will be in the lower part” of Encana’s $3 billion to $3.2 billion guidance while cash flow will be in the middle to upper end of its $2.3 billion to $2.5 billion range, the company said today.
Encana reported its last quarterly profit in the first quarter of 2012.
Former BP Plc executive Doug Suttles, 53, took over as chief executive officer last month and has pledged to improve the company’s capital efficiency. Suttles said he’s preparing the company for continued “modest” gas prices.
“I definitely don’t want to build this company around a bet on gas prices,” Suttles said in a phone interview today. “A trading range not too different from now is a good place to play in.”
Gas prices on the New York Mercantile Exchange dropped 1.2 percent to settle at $3.698 per million British thermal units. Prices have climbed 10 percent this year.
Encana declined 1.9 percent to C$17.78 at the close in Toronto. The shares, which have fallen 9.6 percent this year, have four buy, 16 hold and six sell recommendations from analysts.
The company is seeking a buyer for its holdings in Osage County, Oklahoma, which represents the last of its position in the Mississippian Lime, according to today’s statement. The Deep Panuke gas project offshore Nova Scotia missed the previous mid-year target to come online and the company said it’s in final commissioning.
David O’Brien, one of Encana’s founders, will step down as chairman and remain on the board, the company also said today. Former interim CEO Clayton Woitas will replace him as chairman.
Encana also increased the amount of gas it has locked into forward contracts to about 75 percent of production for the rest of the year and boosted its 2014 hedging position.
Suttles said he expects to complete work on his new strategy by the end of the year and begin carrying out the plan in 2014. “We haven’t actually eliminated any course of action as part of the strategy, other than we’re not going to get out of the oil and gas business,” Suttles said on a conference call with analysts today.