Hedging program, currency loss, lower revenue take toll on Encana’s Q1 results

CALGARY – A combination of hedging and currency losses pushed Encana Corp. (TSX:ECA) into the red in the first quarter but its operating earnings, while down from last year, were better than analysts expected.

Encana had a US$431-million net loss, or 59 cents per share, and $179 million or 24 cents per share of operating earnings in the three months ended March 31, the Calgary-based gas producer announced Tuesday.

The consensus estimate had been for nine cents per share of operating income, according to Thomson Reuters.

The net loss including a $266 million unrealized hedging loss and $101 million in foreign exchange loss compared with a year-earlier profit of two cents per share or $12 million, when those non-operating items showed gains.

Operating earnings — which the company and analysts believe are a more useful measure of Encana’s performance — were down from US$240 million or 33 cents per share in the first quarter of 2012.

Revenue fell to US$1.06 billion from $1.8 billion a year earlier..

“We are pleased with the progress made to date in a number of our emerging plays and the growth in our overall liquids production,” Clayton Woitas, who became interim president and CEO after Randy Eresman abruptly left in January.

Woitas said that one of Encana’s main goals this year is to prove the commercial success of emerging plays “while preserving the financial strength and flexibility of the company.”

Encana, which reports in U.S. currency, said Tuesday it 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.”

Encana spun off its oil and refinery assets in 2009, forming Cenovus Energy Inc. (TSX:CVE).

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.

However, future 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.

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.