• 1 hour Rosneft Signs $400M Deal With Kurdistan
  • 4 hours Kinder Morgan Warns About Trans Mountain Delays
  • 10 hours India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 15 hours Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 19 hours Russia, Saudis Team Up To Boost Fracking Tech
  • 1 day Conflicting News Spurs Doubt On Aramco IPO
  • 1 day Exxon Starts Production At New Refinery In Texas
  • 1 day Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 2 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 2 days China To Take 5% Of Rosneft’s Output In New Deal
  • 2 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 2 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 2 days VW Fails To Secure Critical Commodity For EVs
  • 2 days Enbridge Pipeline Expansion Finally Approved
  • 2 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 2 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 3 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 3 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 3 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 3 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 6 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 6 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 6 days Chevron Quits Australian Deepwater Oil Exploration
  • 6 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 7 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 7 days China Set To Continue Crude Oil Buying Spree, IEA Says
  • 7 days India Needs Help To Boost Oil Production
  • 7 days Shell Buys One Of Europe’s Largest EV Charging Networks
  • 7 days Oil Throwback: BP Is Bringing Back The Amoco Brand
  • 7 days Libyan Oil Output Covers 25% Of 2017 Budget Needs
  • 7 days District Judge Rules Dakota Access Can Continue Operating
  • 8 days Surprise Oil Inventory Build Shocks Markets

Breaking News:

Rosneft Signs $400M Deal With Kurdistan

The Safest Way To Bet On The Bitcoin Boom

The Safest Way To Bet On The Bitcoin Boom

Often described as the backbone…

Tesla Execs Bail As Cash Flow Hits Record Lows

Tesla Execs Bail As Cash Flow Hits Record Lows

Amid a rough second quarter…

Encana To Continue Asset Development Despite Fall In Profits

Encana To Continue Asset Development Despite Fall In Profits

Another North American energy company has taken a significant financial hit from the 8-month-old plunge in oil prices. This time it’s Encana Corp., the largest gas producer in Canada, which suffered an 84.5 percent drop in fourth-quarter operating profits in 2014.

For at least the past year, Encana, based in Calgary, had shifted much of its spending to extracting oil and away from gas production because of the unpredictability of the price of gas. But while the company’s oil production increased, its profits shrank as crude prices dropped.

Encana had even acquired Athlon Energy of Fort Worth, Texas, for $5.93 billion in November at a time when the industry was cutting spending on such companies. The problem was that Athlon specialized in extracting oil from shale, which requires expensive hydraulic fracturing, or fracking, and becomes unprofitable as oil prices continue to fall. Overall Encana spent about $9 billion buying assets in 2014.

Related: Low Oil Prices Lead Tullow To Suspend Dividend

As a result, the company said Feb. 25 that it would reduce spending by $700 million to between $2 and $2.2 billion in 2015, despite more ambitious claims made in December in the range of $2.7 to $2.9 billion for this year. And cash flow projections are also down, expected to be between $1.4 billion and $1.6 billion this year, down from previous forecasts of $2.5 to $2.7 billion.

During the fourth quarter of 2014, Encana reported, operating earnings declined from $226 million a year earlier, or 31 cents per share, to $35 million, or 5 cents per share. Analysts had expected share values of 21 cents each, according to a survey conducted by the Thomson Reuters Foundation.

Encana’s cash flow fell by 44 percent to $377 million, or 51 cents per share, in large part because of higher taxes in general and, more specifically, the cost of acquiring Athlon Energy.

Nevertheless, Encana CEO Doug Suttles said no further spending cuts are planned, even if the company faced more bad financial news. He said the company’s strategy is to develop four sources of unspecified resources in North America, and that cutting spending further might threaten them and, by extension, Encana’s future financial growth.

“Would we move [the budget] lower? Possibly. Probably prefer not to do that,” Suttles told The Globe and Mail. “Unless you really believed this environment was forever, you actually say: ‘Don’t you want to continue to develop those assets?’ ”

Related: Canada’s Imperial Oil Defiant Despite Earnings Drop

Suttles said he preferred relying on “financial options” rather than budget cuts, even if things get worse. One such option would be offering shareholders the opportunity to reinvest dividends in Encana at a discount. He conceded that this wouldn’t raise a significant amount of money, but it would give the company a certain financial resilience.

“Maintaining financial flexibility seems to make a lot of sense in this low-commodity-price [environment],” Suttles told The Globe and Mail, “and this is just one relatively small but not unimportant thing we can do.”

Encana’s downgrades in capital expenditures and cash flow came as no surprise to analysts. After all, the company’s original draft for its 2015 capital budget was predicated on the price of West Texas Intermediate crude at around $70 per barrel. The revised budget is based on WTI at $50 per barrel.

By Andy Tully of Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News