Encana ends year with 600 fewer staff, slashes 2016 capital budget and dividend

CALGARY – Encana Corp. says it expects to end the year with about 600 fewer employees than it started with after being forced to adjust to lower oil and gas prices.

The drop amounts to a 19 per cent head count reduction, with half coming from layoffs that mostly took place during the summer.

The rest is a result of Encana selling off parts of its business.

Chief executive Doug Suttles says current employee numbers should be in line with its 2016 budget, which will be about US$600 million lower than in 2015.

The Calgary-based oil and gas producer is estimating a total capital investment of between US$1.5 billion and US$1.7 billion in 2016, about 25 per cent lower than this year.

Encana is also cutting its quarterly dividend by 78 per cent next year to 1.5 cents per share, reducing the company’s payout to shareholders by $185 million per year.

“This reset better aligns our dividend with our cash flow, our balance sheet, and recognizes the very high quality investment options in our portfolio,” Suttles told a conference call with analysts Monday.

He said the company has “considerable capital flexibility” and will be reviewing its budget on a monthly basis, much as it did this year when it cut spending by 20 per cent two months into the year.

“We actually updated our guidance in February because of the changes in the market that were happening in December and January, and we’re prepared to do that again in 2016 if we need to,” said Suttles.

The announcement by one of Canada’s largest oil and gas producers (TSX:ECA) came as crude futures traded below US$35 a barrel, a level not seen since early 2009 during the global recession.

The company’s announcement also followed a landmark weekend agreement between nearly 200 countries, which have committed to reduce global greenhouse gas emissions, including from oil and gas, starting in 2020.

Encana is assuming West Texas Intermediate crude — a North American benchmark — at US$50 a barrel in 2016. As of Monday, it had fixed-price contracts to sell 48,000 barrels per day at US$58.85 per barrel.

Suttles said the company has hedged about 75 per cent of its crude and half of its natural gas production, giving Encana’s spending programs some protection from quarterly price swings.

He said about half of the company’s capital spending will be in the Permian formation in the southern United States, one of its four core areas. It’s also focused on the Eagle Ford play in Texas and the Montney and Duverney plays in Western Canada.

Production from its four core areas is projected to increase by 12 per cent compared with 2015, to the equivalent of between 260,000 and 280,000 barrels per day — including crude, natural gas and natural gas liquids, Encana said.

The four core areas are expected to represent 75 per cent of Encana’s total production, which is estimated at between 340,000 and 370,000 oil-equivalent barrels per day in 2016.

CIBC analyst Arthur Grayfer said in a note that the guidance was negative with production four per cent below analyst consensus, but that the dividend cut was “appropriate given the challenging business environment.”