EnCana (ECA) Q1 Results
Posted: Tue May 07, 2019 9:30 am
Comments below are from Keith Kohl, whose valuation of ECA is $20/share.
Encana is an independent North American producer that’s focused on developing and
marketing its multi-basin portfolio of crude oil, NGLs, and natural gas plays.
Encana operates in several of the most prominent oil and gas plays in North America.
These include the Permian Basin, Eagle Ford, Montney, and Duvernay.
The company’s strategy is clear and straightforward:
• Disciplined capital allocation strategy to core assets
• Focused investment on growing high-margin liquid volumes
• Maximizing profitability through operational and capital efficiencies
• Preserving balance sheet strength
Strong First Quarter
On April 30, Encana released its first quarter financial and operating results.
During the first three months of 2019, the company posted a net loss of $245 million,
or approximately $0.20 per share. The primary reason for the loss was due to non-cash,
unrealized losses on risk management totaling $427 million, restructuring costs of $113
million, and acquisition-related costs of $31 million.
Non-GAAP operating earnings for the quarter were $165 million, or approximately
$0.14 per share, more than double what analysts were expecting. < This compares
to my forecast of Adjusted Net Income of $124 million, $0.08/share.
Encana generated $529 million in cash from its operating activities in the first quarter
and reported non-GAAP cash flow of $422 million — a 6% year-over-year increase.
From an operational standpoint, the company’s first quarter oil production (including
both Encana and Newfield’s volumes) averaged 125,800 bbls/d, which is a considerable
51% year-over-year increase.
It’s clear Encana is growing, but I should point out that this is something we expect to
see, especially given its major acquisition of Newfield.
So what has Encana been up to? Well, let’s take a look.
In the Permian Basin, the company’s production averaged 91,200 boepd, which was
temporarily impacted by 3,200 boepd thanks to third-party midstream outages.
What’s interesting is that the company’s cube development is starting to take hold in the
play. Encana has proven the strategy pays off and has effectively lowered its drilling and
completion costs in the Permian by roughly 20% since 2014.
In the Anadarko region, Encana’s pro forma production averaged 144,800 boepd during
the quarter, representing a 23% year-over-year incrase. The company has managed to
reduce well costs by $1 million over the last three months, and management fully expects
further cost reductions as they deploy their cube development strategy.
In the Montney play in Canada, Encana’s production averaged 207,300 boepd, and it is
drilling and completing its wells in that area for roughly $4.3 million. Those wells are
significantly outperforming the type curve with early flow rates of over 1,500 bbls/d
of condensate. Production in this play was also temporarily impacted by midstream
curtailments, with a reduction of roughly 4,300 boepd.
Our Take
This was a strong quarter for Encana, and the company is doing a good job integrating
Newfield into the mix. The company’s President and CEO, Doug Suttles, pointed out
that the company expects to deliver annual G&A synergies of at least $150 million,
which is 20% greater than its original commitment.
I’m a buyer at current prices.
Encana (NYSE: ECA) is rated a buy under $20.
Encana is an independent North American producer that’s focused on developing and
marketing its multi-basin portfolio of crude oil, NGLs, and natural gas plays.
Encana operates in several of the most prominent oil and gas plays in North America.
These include the Permian Basin, Eagle Ford, Montney, and Duvernay.
The company’s strategy is clear and straightforward:
• Disciplined capital allocation strategy to core assets
• Focused investment on growing high-margin liquid volumes
• Maximizing profitability through operational and capital efficiencies
• Preserving balance sheet strength
Strong First Quarter
On April 30, Encana released its first quarter financial and operating results.
During the first three months of 2019, the company posted a net loss of $245 million,
or approximately $0.20 per share. The primary reason for the loss was due to non-cash,
unrealized losses on risk management totaling $427 million, restructuring costs of $113
million, and acquisition-related costs of $31 million.
Non-GAAP operating earnings for the quarter were $165 million, or approximately
$0.14 per share, more than double what analysts were expecting. < This compares
to my forecast of Adjusted Net Income of $124 million, $0.08/share.
Encana generated $529 million in cash from its operating activities in the first quarter
and reported non-GAAP cash flow of $422 million — a 6% year-over-year increase.
From an operational standpoint, the company’s first quarter oil production (including
both Encana and Newfield’s volumes) averaged 125,800 bbls/d, which is a considerable
51% year-over-year increase.
It’s clear Encana is growing, but I should point out that this is something we expect to
see, especially given its major acquisition of Newfield.
So what has Encana been up to? Well, let’s take a look.
In the Permian Basin, the company’s production averaged 91,200 boepd, which was
temporarily impacted by 3,200 boepd thanks to third-party midstream outages.
What’s interesting is that the company’s cube development is starting to take hold in the
play. Encana has proven the strategy pays off and has effectively lowered its drilling and
completion costs in the Permian by roughly 20% since 2014.
In the Anadarko region, Encana’s pro forma production averaged 144,800 boepd during
the quarter, representing a 23% year-over-year incrase. The company has managed to
reduce well costs by $1 million over the last three months, and management fully expects
further cost reductions as they deploy their cube development strategy.
In the Montney play in Canada, Encana’s production averaged 207,300 boepd, and it is
drilling and completing its wells in that area for roughly $4.3 million. Those wells are
significantly outperforming the type curve with early flow rates of over 1,500 bbls/d
of condensate. Production in this play was also temporarily impacted by midstream
curtailments, with a reduction of roughly 4,300 boepd.
Our Take
This was a strong quarter for Encana, and the company is doing a good job integrating
Newfield into the mix. The company’s President and CEO, Doug Suttles, pointed out
that the company expects to deliver annual G&A synergies of at least $150 million,
which is 20% greater than its original commitment.
I’m a buyer at current prices.
Encana (NYSE: ECA) is rated a buy under $20.