Bloomberg News

Encana Quarterly Profit Falls 80% on Canadian Dollar Decline

October 20, 2011

(Updates with closing share price in fifth paragraph.)

Oct. 20 (Bloomberg) -- Encana Corp., Canada’s biggest natural-gas producer, said third-quarter profit declined 80 percent as the decline in the Canadian dollar resulted in currency losses.

Net income slumped to $120 million, or 16 cents a share, from $606 million, or 80 cents, a year earlier, Calgary-based Encana said today in a statement. Excluding currency losses and gains from contracts used to lock in commodity prices, the company earned 23 cents a share, more than double the 11-cent average of 16 analysts’ estimates compiled by Bloomberg.

The Canadian dollar declined 7.8 percent against the U.S. currency in the third quarter. The company had $310 million in cash and cash equivalents at the end of the quarter, down from $1.4 billion a year ago. Sales fell 3 percent to $2.35 billion.

“Encana is going to have to have more joint ventures or asset sales next year if they don’t want to take on more debt,” said John Malone, an analyst at Ticonderoga Securities LLC in New York who has a neutral rating and doesn’t own the stock. The company needs to raise about $1 billion from such transactions next year, he said.

Encana fell 0.5 percent to C$20.44 at the close in Toronto. The stock, which has eight buy, two sell and 16 hold ratings from analysts, has dropped 30 percent this year.

The company is selling assets to fund more profitable operations. It announced agreements this month to sell a portion of its Piceance pipeline system and a stake in the Cabin Gas Plant in British Columbia for about $800 million.

Joint Ventures

It has also agreed to joint ventures to help fund development. The company expanded an agreement with Korea Gas Corp. for drilling in the Horn River gas area in July. A proposed C$5.4 billion ($5.3 billion) agreement with PetroChina Co. fell apart in June.

Gas output rose 5.8 percent to 3.37 billion cubic feet a day in the third quarter from 3.18 billion cubic feet a year earlier. Production of gas liquids, which include ethane, butane and propane, rose 4.2 percent to 24,377 barrels a day and the company said it plans to triple production to about 80,000 barrels by 2015.

“We are planning to direct an increasing portion of our investment to grow our oil and natural-gas liquids production,” Chief Executive Officer Randy Eresman said in the statement today.

Industry Costs Rise

Encana expects industry costs to rise as much as 12 percent this year as competition for drilling and pumping service crews increases, Eresman said in July. The company has been reducing expenses and using financial contracts to fix commodity prices to guard against fluctuations.

Gas futures have sold at an average of $4.168 per million British thermal units this year in New York, down from a high of $13.577 in July 2008.

Encana and its partners are discussing possible sales agreements with customers in Asia for their liquefied natural gas project in Kitimat, British Columbia. The plant won an export license from Canada’s energy regulator on Oct. 13.

--Editors: Tina Davis, Charles Siler

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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