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Encana (ECA) Q2 Earnings Beat on Output Growth & Oil Price

Zacks Equity Research

Bringing in pleasant news for investors, Encana Corporation ECA has managed to maintain earnings beat streak in second-quarter 2019 on the back of increased production volumes and higher oil price realizations. The Canadian oil and natural gas producer reported operating earnings of 21 cents per share, outperforming the Zacks Consensus Estimate of 17 cents. The reported figure was in line with the year-ago period.

Total revenues came in at $2,055 million, surpassing the Zacks Consensus Estimate of $1,733 million and increasing from the year-ago level of $983 million.

Production and Prices

A few years back, natural gas accounted for around 95% of Encana’s output. However, the company successfully repositioned its asset base and transitioned to the more profitable crude over a couple of years. This is evident from natural gas output in the quarter under review, which accounted for around 45.3% of its total production.

Total second-quarter production (Encana plus Newfield combined) came in at 591,800 barrels of oil equivalent per day (BOE/d) compared with 533,200 BOE/d in the prior-year period. Natural gas production increased 5.8% year over year to 1,607 million cubic feet per day and liquids production rose 15.8% to 324,000 BOE/d. Production growth from its core assets — Permian, Anadarko and Montney — enabled the firm to deliver impressive year-over-year results.

Encana's realized natural gas production was $2.22 per thousand cubic feet compared with the year-ago level of $3.03. Meanwhile, realized oil price rose to $60.14 per barrel from $58 in the second quarter of 2018.

Costs, Capex and Balance Sheet

Total expenses increased to $1.5 billion from the year-ago figure of $1.1 billion. The rise is primarily attributed to increase in depreciation, transportation and operating costs.

Encana’s cash from operating activities in the quarter under review came in at $906 million, recording an increase from the year-ago figure of $475 million. The company's capital investments during the quarter were $750 million, up from $595 million in the year-ago period.

As of Jun 30, Encana had cash and cash equivalents of $167 million, and long-term debt of more than $7 billion. Its debt-to-capitalization ratio came in at 41.3%.

Guidance

Encana, which completed the acquisition of Newfield Exploration Company in February, reiterated its 2019 capital expenditure guidance of $2.7-$2.9 billion.Of the total, three-fourths will be dedicated toward the firm’s three core plays (Permian, Montney and Anadarko). Encana sees 15% liquids production growth from these regions.Capex in the second half of 2019 is expected to be $500-$600 million per quarter. The firm is expected to generate significant FCF in the said time frame.

Zacks Rank & Key Picks

Encana currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked players in the energy space are Oasis Midstream Partners LP OMP, Plains Group Holdings, L.P. PAGP and Magellan Midstream Partners, L.P. MMP, each sporting a Zacks Rank #1.

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