Encana Corp. shares rose sharply and then fell in early trading on the Toronto Stock Exchange on Tuesday after it reported first-quarter production and financial results that missed analyst expectations.
The Calgary-based oil and gas producer closed the all-shares acquisition of U.S. rival Newfield Exploration Co. in mid-February, thus gaining a new core operating area in the Anadarko Basin of Oklahoma.
The purchase sparked a 15 per cent reduction in the combined companies’ workforce, as well as operational changes that Encana said have already resulted in more than US$1 million per well cost reductions in the former Newfield oilfields.
On a conference call, Encana CEO Doug Suttles promised the company will not increase spending beyond the US$2.8 billion it has budgeted for this year despite recent higher oil prices.
The company reported already completing 60 per cent of the 91-million-share buyback program it launched in March.
“We see compelling value in Encana stock today; in fact, we believe that buying our own equity is an incredible value,” Suttles said.
“Although higher oil prices are certainly a nice tailwind, I want to be very clear that higher oil prices will not translate into higher capital spending.”
Encana shares rose by as much as 4.5 per cent to $9.98 early Tuesday before trailing off to $9.36, down two per cent, by noon EDT.
Encana, which keeps its books in U.S. dollars, reported a net loss of $245 million in its latest quarter as it was hit by $113 million in employee severance and outplacement costs and non-cash losses of $427 million from its commodity hedging program.
It earned a net profit of $151 million in the same quarter a year earlier.
Annual general and administrative cost savings from the Newfield purchase are now expected to be $150 million, up from the earlier estimate of $125 million, Suttles said, noting the company is realizing more savings by measures including selling or subletting unneeded real estate.
Analysts said Encana’s first-quarter production of 468,000 barrels of oil equivalent per day — including a month and a half of Newfield output — was lower than consensus expectations of 478,000 boe/d.
Slightly better than expected Anadarko volumes were offset by third-party midstream outages that caused reductions in production from Texas Permian wells and from the Montney region in Western Canada.
“Overall, while the quarter was messy, we do not see anything structurally broken and as such expect any weakness to be bought by the market in anticipation of a stronger Q2,” said AltaCorp Capital analyst Thomas Matthews in a report.
Encana said its adjusted operating profit for the first quarter totalled $165 million, compared with an operating profit of $156 million a year ago.
It reaffirmed its production targets for 2019, including approximately 15 per cent liquids growth from its three core growth assets.
