CALGARY – Encana Corp. has reported first-quarter operating earnings that beat analyst expectations and says its hunt for a new CEO is nearing its end.
The natural gas giant (TSX:ECA.TO) posted operating earnings of US$179 million, or 24 cents per share. During the same period a year earlier, operating earnings — deemed a better measure of Encana’s underlying performance — were $240 million, or 33 cents per share.
The consensus estimate had been for nine cents per share of operating income, according to Thomson Reuters.
On a net basis, Encana posted a US$431-million loss, or 59 cents per share.
The net loss included a $266-million unrealized hedging loss and $101 million in foreign exchange losses compared to a year-earlier profit of two cents per share or $12 million, when those non-operating items showed gains.
Revenue fell to $1.06 billion from $1.8 billion a year earlier.
A board committee has whittled down its list of potential CEO candidates to replace Randy Eresman, who left abruptly at the beginning of the year. The short list includes both internal and external candidates. Interviews have begun and Encana expects to complete its search by the end of June.
Chairman David O’Brien is to step down after a new CEO is in place. Clayton Woitas, who has been serving as CEO on an interim basis, will then take O’Brien’s place as chairman.
Encana spun off its oil and refinery assets in 2009, forming Cenovus Energy Inc..
The rationale behind the split was to allow investors to better see the value of each distinct side of the business. But years of persistently low natural gas prices have taken their toll on Encana, which is almost exclusively focused on that commodity.
One way to cope has been to chase after natural gas liquids, which fetch a much better price than ordinary dry natural gas.
Encana finished 2012 producing about 37,000 barrels of liquids per day, and expects to exit this year producing between 70,000 and 75,000 barrels from shale formations across Canada and the U.S.
The targets include “minimal” volumes from its more early-stage developments.
“Until our emerging plays are proven to be commercial, we are taking a conservative approach to forecasting volume growth,” Woitas said.
“That being said, we have taken some positive strides in the development of our emerging plays this quarter.”
Natural gas prices on the New York Mercantile Exchange appear to be firming up to prices above US$4 per 1,000 cubic feet, which would be good news for Encana.
Encana has entered contracts to sell some of its production at set prices between this year and 2015 as a means to cushion itself against price volatility.
Between April and December 2013, it has hedged about 1,515 million cubic feet per day at an average price of $4.39 per 1,000 cubic feet. For 2014, it has hedged 1,498 million cubic feet per day at a price of $4.19 and for 2015 it has hedged about 825 million cubic feet at a price of $4.37.
It has also locked in 15,000 barrels per day of its oil production between April and December of this year at a price of $98.08 per barrel and about 5,800 barrels per day at $93.80 next year.
Woitas said one of Encana’s main goals is to prove the commercial success of its newer developments while keeping its finances in good shape.
Encana finished the quarter with approximately $2.9 billion in cash and cash equivalents and expects to finish the year with approximately $1.5 billion to $2.0 billion of cash and cash equivalents.
“Our focus remains on reducing costs and increasing our profitability,” Woitas said.
“Through the first quarter we identified several areas where we can become more efficient in our business. We expect the cost reduction efforts we’ve made at the beginning of this year to have an impact on our financial results during the second half of the year.”
In December, Encana inked a joint-venture deal with a subsidiary of PetroChina to develop gas from the Duvernay shale formation in west-central Alberta.
The Chinese company will end up owning just shy of half of the 180,000 hectares Encana has in the Duvernay.
Encana and PetroChina have a history: an earlier $5.4-billion joint-venture deal for Encana’s lands in the Montney region fell apart in mid-2011 after they failed to see eye-to-eye on how that project would operate.
In February of last year, Encana reached a deal to sell 40 per cent of its undeveloped Cutbank Ridge lands in British Columbia to Mitsubishi Corp. of Japan for $2.9 billion.
Encana shares fell 14 cents to $19.15 in late-morning trading on the Toronto Stock Exchange.