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Calgary, Alberta-based exploration and production (E&P) company, Encana Corporation (ECA - Analyst Report), reported strong second-quarter 2013 results, primarily reflecting significant hike in liquid production along with substantial fall in total expenses.
The company announced operating earnings per share (excluding one-time items) of 34 cents, comprehensively beating the Zacks Consensus Estimate of 14 cents. Comparing year over year, earnings increased 25.9% from 27 cents.
Revenues (net of royalties) came in at $1,984.0 million, up by a whopping 171.4% from the prior-year figure of $731.0 million. The results also beat the Zacks Consensus Estimate of $1,431.0 million.
Production & Prices
In the second quarter of 2013, natural gas production declined approximately 1.3% year over year to 2,766.0 million cubic feet per day (MMcf/d), primarily due to a 10.4% drop in volumes in the resource plays of the USA division. Encana's realized natural gas prices decreased approximately 12.9% year over year to $4.17 per thousand cubic feet (Mcf).
The company's oil and liquids production climbed 68.8% year over year to 47,600 barrels per day (Bbls/d), aided by a significant improvement in output from the resource plays of the USA and Canadian division. Encana's oil and other liquids were sold at $68.25 per barrel, down 15.0% from the second quarter of 2012.
Encana reported total expenses of $1,498.0 million for this quarter, representing a year over year reduction of 61.7%.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $665.0 million or 90 cents per share against $794.0 million or $1.08 per share during the second quarter of 2012. The company drilled 91 net wells against 85 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $639.0 million (excluding acquisitions and divestitures). As of Jun 30, 2013, cash on hand was $2,916.0 million and long-term debt (including current portion) was $7,633.0 million, representing a debt-to-capitalization ratio of 59.0%.
The company has maintained its expected full-year 2013 natural gas production of 2.8–3.0 billion cubic feet per day and liquid output of 50,000–60,000 barrels per day.
Encana expects its full-year 2013 capital investment to follow the lower end of its projected range of $3.0 to $3.2 billion.
The company 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.
Encana is one of the largest natural gas companies in North America with a diverse and high-quality portfolio of natural gas assets spread over Canada and the U.S. This results in a huge inventory of reserves and a resource base capable of robust production growth.
However, Encana’s extensive natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more diversified independent peers with higher oil production.
Meanwhile, one can look at E&P companies like Abraxas Petroleum Corp. (AXAS - Snapshot Report), Evolution Petroleum Corp. (EPM - Snapshot Report) and EXCO Resources Inc. (XCO - Snapshot Report). All the firms sport a Zacks Rank #2 (Buy).