Encana (ECA) Q2 Earnings Crush Estimates On Cost Control

Calgary, Alberta-based Encana Corp. (NYSE:ECA) reported operating earnings per share of 10 cents, contrary to the Zacks Consensus Estimate for a loss of 8 cents. In the year-ago quarter, the company incurred operating loss of 20 cents per share. The outperformance came on the back of successful cost containment efforts.

However, quarterly revenues (net of royalties) – at $364 million – came significantly below the Zacks Consensus Estimate of $775 million on sharply lower natural gas prices and volumes.

Moreover, the top line plunged 56% from the prior-year figure of $830 million.

Production & Prices

In the second quarter, natural gas production declined 10% year over year to 1,418 million cubic feet per day (MMcf/d). Encana's realized natural gas prices were $1.86 per thousand cubic feet, almost halving from the year-ago quarter level of $3.52.

The company's oil and liquids production rose 4% year over year to 132,000 barrels per day on strong contribution from the Montney, Duvernay, Eagle Ford and Permian shale plays. Encana sold liquids at $38.47 per barrel, down from $43.78 per barrel during the second quarter of 2015.

Cash Costs

Encana reported operating costs of $135 million for the reported quarter, 32% lower than the year-ago quarter level. Meanwhile, transportation and processing expenses fell 18% to $244 million.

Cash Flows

Encana generated cash flows from operations of $182 million or 21 cents per share, literally unchanged from the $181 million or 22 cents per share in the second quarter of 2015.

Capital Spending and Balance Sheet

Encana's capital investments during the quarter were $215 million. As of Jun 30, 2016, cash and cash equivalent was $293 million and long-term debt was $5,690 million. This represents a debt-to-capitalization ratio of 53.7%.

Guidance and Outlook

Encana had earlier set $900 million-$1 billion as 2016 capital expenditure budget. However, the company plans to utilize a part of its divestment proceeds – from the sale of its Gordondale and DJ Basin properties – to increase this year’s capital expenditure budget by another $200 million.

Encana hopes the additional outlay will help in increasing output by around 13,000 barrels of oil equivalent per day from its four major operational areas in the last quarter of 2016. The Permian, Eagle Ford, Duvernay and Montney assets make up almost three fourths of the total company volumes.

Finally, encouraged by the success of its cost cutting plans, Encana expects to lower its transportation, processing and operating expenses by $1000 million in 2016.

Zacks Rank and Key Stock Picks

Currently, Encana carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Anadarko Petroleum Corp. (NYSE:APC) , Apache Corp. (NYSE:APA) and Cabot Oil & Gas Corp. (NYSE:COG) . All these stocks carry a Zacks Rank #2 (Buy).