Encana Corp. (ECA), Canada’s largest natural gas producer, posted a third-quarter loss after reducing the value of its reserves by $1.19 billion on falling prices for the fuel.
The net loss was $1.24 billion, or $1.69 a share, compared with profit of $459 million, or 62 cents, a year earlier, the Calgary-based company said in a statement today. Excluding the writedown and other one-time gains and losses, per-share profit was 36 cents, beating the 27-cent average of 18 analysts’ estimates compiled by Bloomberg.
Encana, which curtailed output when gas prices in New York went below $2.50 per million British thermal units, said it began resuming production at shut-in wells in August and volumes are “now largely restored.” The company affirmed its 2012 production target of 3 billion cubic feet a day.
“We believe that natural gas prices will settle out in the $4 to $5 range in the next couple of years,” Chief Executive Officer Randy Eresman said on a conference call today. “We have a considerable volume which is exposed to that potential upside.”
Encana fell 3.1 percent to C$21.86 at the close in Toronto. The shares have one buy, 16 hold and six sell recommendations from analysts.
Average gas production was 2.9 billion cubic feet a day during the quarter, a 14 percent decline from the same period a year earlier. Output of natural gas liquids rose 24 percent to 30,300 barrels a day. Encana has been boosting production of liquids, which fetch higher prices than gas, and raising cash by selling assets or seeking joint venture partners to help fund drilling costs.
Encana is selling stakes in five joint ventures, including holdings in Texas and Alberta. It expects to announce one deal by year end, Eresman said in an Oct. 17 interview.
The company has seen “tremendous interest” in its joint venture packages and will meet or exceed a target of raising $3 billion from partnerships or sales this year, Eresman said today. The number of other assets available for buyers may limit the size of its transactions and slow a deal, he said.
Encana is splitting up a combined three-property offering in the U.S. and allowing bidders to make separate offers for its holdings in the Eaglebine, Tuscaloosa and Mississippian. Other “designer packages” may be offered, he said.
Encana increased the amount of 2013 output it has hedged to about 1.2 billion cubic feet a day at an average price of $4.51 per thousand cubic feet, according to today’s statement.
Natural gas prices averaged $2.893 per million British thermal units in New York during the quarter, down 29 percent from a year earlier. The futures have recovered after reaching a 10-year low on the New York Mercantile Exchange in April.
The company’s results were “negative,” Philip Skolnick, a New York-based analyst for Canaccord Genuity Corp., wrote in a note today. Encana didn’t announce a joint venture or disclose specific well results and its added hedging, which may bring in $100 million, shows the company doesn’t see more “upside” to gas prices or is cautious about partnerships and asset sales, he wrote.
Investors have been speculating Encana may announce a partnership in its liquids-rich Duvernay shale in Alberta “in the near term,” Skolnick said.
Exxon Mobil Corp. (XOM:US) agreed to pay C$2.86 billion ($2.87 billion) to take over Celtic Exploration Ltd. (CLT)’s Duvernay and Montney shale leases in Alberta on Oct. 17. The sale helps “externally verify” the Duvernay formation, Eresman said in the interview last week.
Encana’s writedown today follows a $1.7 billion reduction in asset values by the company in the second quarter because of declining gas prices.
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