Calgary, Alberta-based natural gas exploration and production (E&P) company, Encana Corporation (ECA), reported weak second-quarter 2014 results owing to lower natural gas volumes − in the US resource plays − and prices. The weakness was partially compensated by decreased operating expenses.
The company announced operating earnings per share (excluding one-time items) of 23 cents, which failed to beat the Zacks Consensus Estimate of 28 cents. The bottom line also decreased 32.4% from the year-ago adjusted profit of 34 cents per share.
Revenues (net of royalties) came in at $1,588.0 million, down 20.0% from the prior-year figure of $1,984.0 million. Moreover, the top line fell short of the Zacks Consensus Estimate of $1,617.0 million.
Production & Prices
In the second quarter, natural gas production declined approximately 8.0% year over year to 2,541.0 million cubic feet per day, primarily due to a drop in production volumes in resource plays of the USA division. Encana's realized natural gas prices fell approximately 2.2% year over year to $4.08 per thousand cubic feet.
The company's oil and liquids production climbed 43.0% year over year to 68,200 barrels per day, aided by a significant improvement in output from the resource plays of the USA and Canadian divisions. Encana sold oil at $69.53 per barrel, up marginally by 1.9% from the second quarter of 2013.
Encana – which has been restructuring its portfolio to focus more on oil producing resources owing to weak natural gas prices − reported operating costs of $178.0 million for this quarter, down 15.2% from the year-ago quarter.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $656.0 million or 89 cents per share against $665.0 million or 90 cents per share during the second quarter of 2013. The company drilled 58 net wells against 91 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $560.0 million. As of Jun 30, 2014, cash on hand was $2,658.0 million and long-term debt was $6,121.0 million, representing a debt-to-capitalization ratio of 46.9%.
The company expects to invest $2.6–$2.7 billion in 2014 (for upstream activities), higher than its previous forecast. The improvement is owing to the planned spending in Eagle Ford acreages, which the company acquired recently.
Encana also increased its 2014 total production guidance to 86,000–91,000 bbls/d.
Encana currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at better-ranked players in the same industry like EXCO Resources Inc. (XCO), Newfield Exploration Co. (NFX) and VOC Energy Trust (VOC). All the stocks sport a Zacks Rank #1 (Strong Buy).