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Encana (ECA) Posts Q2 Loss on High Costs and Low Gas Output

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Encana Corporation (ECA - Free Report) reported second-quarter 2018 net loss of 16 cents per share, underperforming the Zacks Consensus Estimate of earnings of 10 cents.

The weaker-than-expected results are attributed to the $236 million non-cash charge incurred in the quarter. The bottom line also deteriorated from 34 cents per share reported in the year-ago quarter amid increasing costs and a decline in natural gas output.

Quarterly revenues of $983 million missed the Zacks Consensus Estimate of $1,144 million. Revenues were also lower than the prior-year figure of $1,083 million.

Encana Corporation Price, Consensus and EPS Surprise

Encana Corporation Price, Consensus and EPS Surprise | Encana Corporation Quote

Production & Prices

Of late, Encana has successfully repositioned its asset base and transitioned to the more profitable crude. Production growth from its core assets, namely Permian, Montney, Eagle Ford and Duvernay, led the company deliver impressive year-over-year results. The four core assets accounted for 96% of Encana’s total production. Permian and Montney liquids production recorded a year-over-year increase of 42% and 128%, respectively.

Total second-quarter production came in at 337,900 barrels of oil equivalent per day (BOE/d) compared with 316,000 BOE/d in the prior-year quarter.

Quarterly natural gas production declined approximately 4% year over year to 1,095 million cubic feet per day, while liquids production rose 24% from the prior-year quarter to 155.3 thousand barrels per day.

Encana's realized natural gas price was $3.03 per thousand cubic feet compared with the year-ago level of $2.56. Further, realized oil price also rose to $58 per barrel from $48.27 in the second quarter of 2017.

Costs & Expenses

Total operating expenses increased 44.22% from second-quarter 2017 to $1,099 million. The rise is primarily attributed to increase in depreciation and transportation charges, along with higher purchased products costs.

Dividend and Share Repurchase Program

On Jul 31, Encana declared a dividend of 1.5 cents per share payable on Sep 28, 2018 to shareholders of record as of Sep 14.

Encana is on track to buy back shares worth $400 million through 2018, with already repurchasing $200 million shares year-to-date.

Capex, Cash Flow and Balance Sheet

Encana's capital investments during the quarter were $595 million. The company’s cash from operating activities came in at $475 million, recording an increase of around 118% from the year-ago figure of $218 million. On a further encouraging note, the company updated its full-year cash flow margin from $14 per Boe to $16 per Boe. Encana now anticipates generating free cash flow (FCF) in this year itself, as against the prior expectation to generate FCFs in 2019.

As of Jun 30, 2018, cash and cash equivalents were $336 million and long-term debt was $3,698 million. The debt-to-capitalization ratio came in at 36.3%.

Zacks Rank & Key Picks

Encana currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are China Petroleum and Chemical Corp. (SNP - Free Report) , also known as Sinopec, PetroChina Company Ltd. (PTR - Free Report) , and ConocoPhillips (COP - Free Report) . While Sinopec and PetroChina sport a Zacks Rank #1 (Strong Buy), ConocoPhillips carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sinopec delivered an average positive earnings surprise of 492.8% in the trailing four quarters.

PetroChina delivered an average positive earnings surprise of 21.99% in the trailing four quarters.

ConocoPhillips pulled off an average positive earnings surprise of 27.59% in the last four quarters.

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