Natural gas exploration and production (E&P) company, Encana Corporation (ECA - Analyst Report) reported mixed first-quarter 2013 results, primarily reflecting better drilling activities at prime areas such as the Peace River Arch region and Clearwater area. These were partially offset by low natural gas volumes and hedging loss.
The company announced operating earnings per share (excluding one-time items) of 24 cents, comprehensively beating the Zacks Consensus Estimate of 4 cents. Comparing year over year, earnings fell 27.3% from 33 cents.
Revenues (net of royalties) came in at $1,059 million, down 41.1% from the prior-year figure of $1,799 million. The results also failed to beat the Zacks Consensus Estimate of $1,324 million.
Production & Prices
In the first quarter of 2013, natural gas production declined approximately 12.1% year over year to 2,877 million cubic feet per day (MMcf/d), primarily due to a 18.2% drop in volumes in the resource plays of the USA division. Encana's realized natural gas prices decreased approximately 15.7% year over year to $3.86 per thousand cubic feet (Mcf).
The company's oil and liquids production climbed 48.5% year over year to 43,500 barrels per day (Bbls/d), aided by a 93.1% improvement in output from the resource plays of the USA division. Encana's oil and other liquids were sold at $69.45 per barrel, down 17.1% from the first quarter of 2012.
Cash Flows and Drilling Statistics
Encana generated cash flows from operations of $579 million or 79 cents per share against $1,021 million or $1.39 per share during the first quarter of 2012. The company drilled 174 net wells against 207 in the prior-year quarter.
Capital Spending and Balance Sheet
Encana's capital investments during the quarter were $715 million (excluding acquisitions and divestitures). As of Mar 31, 2013, cash on hand was $2,878 million and long-term debt (including current portion) was $7,659 million, representing a debt-to-capitalization ratio of 61.9%.
The company said that it expects 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.
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.
Additionally, we remain optimistic regarding the collaboration of Encana and Mitsubishi in developing the Cutbank Ridge, which is one of the most fertile and low-cost resource-rich acreages in North America. With a large proved undeveloped natural gas reserve, the region is expected to have the capacity of delivering long-term, affordable energy supplies to the domestic and overseas markets.
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, there are some E&P companies that are expected to significantly outperform the broader U.S. equity market over the next one to three months. These include Cheniere Energy Inc. (LNG - Snapshot Report) , EPL Oil & Gas Inc. and Range Resources Corporation (RRC - Analyst Report) . All three firms sport a Zacks Rank #1 (Strong Buy).