Encana Slumps on Downbeat Earnings

The stock of Encana Corporation (NYSE: ECA) edged lower by almost 12 percent, after the release of its earnings results for the first quarter of fiscal year 2016, which is significantly weaker than anticipated, according to recent reports. Encana stated that it is on track to reach or even go beyond the previously provided guidance for fiscal year 2016.

“The quality of our core four assets, combined with increased capital efficiency and operational innovation, are delivering basin-leading performance, enhancing our competitiveness, and contributing to cash flow,” said the company’s CEO Doug Suttles.

According to the Encana CEO, the company is on track to post year-over-year cost savings amounting to approximately $550 million. Mr. Suttles stated that while providers keep reducing their rates, that is not actually what’s driving the huge chunk of savings for the company. The executive stated that two-thirds of the cost cuts of the energy corporation are related to enhancements in terms of execution, which are anticipated to be maintained even if there will be a turnaround in the market. The teams of the corporation are engaged in drilling the lower-cost and highest-performing wells in its core assets.

During the given period, Encana was able to lower the drilling costs of the Permian and Eagle Ford by 24 percent on a year-over-year basis, and the completion costs by about 44 percent on a year-over-year basis. According to an independent third party research, the energy company is performing well and is among the top in the industry.

In the first quarter of fiscal year 2016, the energy producer has incurred a $0.150 per share loss, and missed the Street’s estimate of $0.125. This figure is equivalent to a 20 percent miss and was a big disappointment. During the same quarter in the previous year, Encana managed to earn $0.010 per share.

Meanwhile, the company’s revenue came in at $753 million, and this figure is almost at par with the forecasts of analysts. The estimate of analysts stands at $754.75 million, and represents a decline of approximately 40 percent on a year-over-year basis and about 27 percent on a sequential basis.

The oil production for the quarter came in at 383,400 barrels of oil equivalent per day. The core four assets of Encana contributed around 70 percent or 269,100 to the total. The total liquids production has shown an 8 percent growth in comparison to the same quarter in the previous year, as it averaged 130,800 barrels per day. The production of natural gas averaged about 1.5 billion cubic feet per day.

During the first quarter, the company has generated a $102 million cash flow, against the $383 million during the fourth quarter of fiscal year 2015. The decline is primarily due to a significant drop in the prices of crude oil and natural gas, the reduced liquid volumes, lower hedging gains, as well as a $31 million restructuring charge.

As of the time of writing, the shares of Encana Corporation are changing hands at $6.54, lower by 11.92 percent.

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