- Shares surge as much as 24%, most intraday since October 2008
- Producer reports fourth straight quarterly loss in price slump
Encana Corp. surged the most in more than seven years after the company cut its annual budget further, lowering the dividend and reducing its workforce another 20 percent, amid tumbling oil and natural gas prices.
Encana is “relentlessly” pursuing cost-cutting as North American producers try to remain competitive, Doug Suttles, the company’s chief executive officer, said Wednesday on a conference call. “The world taking on North America better get ready because this part of the planet knows how to get efficient and you’re seeing it every day.”
Energy companies are curbing spending and payments to shareholders as they set aside drilling rigs to weather an oil-market crash that has dragged on for 20 months. U.S. crude is hovering around $30 as fears of slowing demand mount while investors remain unconvinced that a proposal last week to freeze output between Russia and some members of the Organization of Petroleum Exporting Countries will ease a global glut.
Shares of the Canadian gas and oil producer rose 18 percent to C$4.89 at 10:47 a.m. in Toronto after earlier gaining 24 percent, the most since October 2008.
Encana reported a fourth-quarterly net loss of $612 million compared with net income of $198 million a year earlier, the Calgary-based company said Wednesday in a statement. Excluding one-time items, the 13-cent-a-share profit beat the 1-cent average of 18 analyst estimates compiled by Bloomberg.
The company expects to spend $900 million to $1 billion this year, a 55 percent decline from 2015 and lower than the $1.5 billion-to-$1.7 billion range it estimated in December. Encana cut its quarterly dividend to 1.5 cent a share from 7 cents. The job reductions this year mean Encana will have more than halved its workforce since 2013.
Almost all spending will be directed to the company’s four primary assets, the Eagle Ford and Permian in the U.S. and the Montney and Duvernay in Canada. Encana forecasts cost reductions of $550 million from 2015, including on transportation and processing, operations, taxes and overhead.
“We expect Encana to trade in-line/outperform the broader energy group today on the back of decent 4Q results, a reduced 2016 capital program, and Big 4 production of 274,400 boe/d, which exceeded guidance of 270,000 boe/d,” Greg Pardy, an analyst at RBC Dominion Securities in Toronto, wrote Wednesday in a note. He referred to production in equivalent barrels of oil a day from the company’s four primary areas of focus in North America.
While Encana has focused on increasing oil and liquids output, about 90 percent of its production was from gas in 2014. Profit margins for the fuel are below those of its peers as Encana has allowed costs to creep up, according to Chris Feltin, an analyst at Macquarie Capital Securities in Calgary.
North American gas prices averaged $2.235 per million British thermal units in the fourth quarter, while West Texas Intermediate crude averaged $42.16 a barrel. Crude is down about 70 percent from its high in mid-2014.
“We have the financial flexibility to withstand the current environment for an extended period of time,” Suttles said. The company has about $4 billion of liquidity, no risk of violating financial covenants, no debt due until 2019 and 75 percent of its debt isn’t due until 2030 and beyond, Suttles said.