Encana Corp., Canada’s largest natural gas producer, returned to a third-quarter profit and beat analysts’ estimates after increasing its oil and petroleum liquids output as prices rose.
Net income was $188 million, or 25 cents a share, compared with a loss of $1.24 billion, or $1.69, a year earlier, the Calgary-based company said today in a statement. Excluding a foreign-exchange gain, income tax adjustment and hedging loss, per-share profit was 20 cents, exceeding the 16-cent average of 18 estimates compiled by Bloomberg.
The company will reduce capital spending this year to $2.7 billion to $2.9 billion, from a July forecast of $3 billion to $3.2 billion. Encana, which has been focusing its spending on oil and liquids after gas prices fell to a 10-year low last year, said it will announce a long-term strategic plan before the end of the year.
“We are encouraged by Encana’s strong liquids growth this quarter and the further reduction in capital spending,” Randy Ollenberger, an analyst at BMO Capital Markets in Calgary who rates the stock a buy, wrote in a note to clients today. Investors remain “on hold” for Encana’s new strategy, which may include a lower dividend and reduced U.S. spending, he said.
Oil and natural-gas liquids output averaged about 58,200 barrels a day in the third quarter, a 92 percent increase from a year earlier, the company said. Encana remains on track to average 50,000 to 60,000 barrels a day of liquids this year, up from 31,000 barrels a day in 2012.
Gas production fell 6 percent to 2.72 billion cubic feet a day. Encana revised down its forecast for 2013 output to 2.7 billion to 2.8 billion cubic feet a day, reflecting asset sales and delays with the Deep Panuke project off Nova Scotia.
Sales were $1.39 billion in the quarter, 36 percent more than the same period last year. Financial results a year ago included a $1.19 billion reduction because of the decline in gas prices.
Encana is looking to “significantly” expand its operations in the Duvernay formation in Alberta after drilling high rates of liquids, Mike McAllister, the president of the company’s Canadian unit, said on a conference call today. The company has “cracked the technical nut” as it boosted production by changing hydraulic fracturing techniques, he said.
Doug Suttles, who became chief executive officer in June, said at an investor conference last month the company needs to “clean up its portfolio” and will review its dividend as part of a strategic review. The company has maintained a 20-cent quarterly payout since 2009.
Encana is also examining the size of its workforce, Suttles said in a phone interview today. The company will announce a new strategy and its 2014 plan “as soon as we possibly can,” he said.
Benchmark U.S. oil prices climbed 15 percent from a year earlier to average $105.81 a barrel during the third quarter. North American gas prices to average $3.555 per million British thermal units in New York, 23 percent more than a year earlier.
Encana advanced 1.9 percent to C$19.15 at the close in Toronto. The shares, which have dropped 2.6 percent this year, have seven buy, 14 hold and five sell recommendations from analysts.