Encana Corp. chief executive Doug Suttles, who unveiled a restructuring plan last fall, says the natural gas company’s makeover is one or two years ahead of schedule.
Mr. Suttles, who took over Encana last summer, is shifting Encana away from its roots as a natural gas company and pumping more oil and natural gas liquids out of the ground. Those commodities are more profitable right now, and would mean the company is not reliant on just one product.
The speed of the strategic renovation is designed to lure investors back to the company after years of disappointment, and comes as Talisman Energy Inc., one of Encana’s rivals, struggles with its own restructuring. But while the plan is unfolding quicker than Mr. Suttles anticipated, Encana’s profit sagged in the second-quarter.
“We generally think we’re between one and two years ahead on our strategy delivery,” Mr. Suttles said on a conference call with investors Thursday.
Encana has been selling assets in order to whittle down the company to five main areas: the Montney in northeast British Columbia and northwest Alberta; the Duvernay in west central Alberta; the DJ Basin liquids play in Colorado; the San Juan oil zone in northwest New Mexico; and the Tuscaloosa marine shale in Mississippi and Louisiana. In May, Mr. Suttles further pushed into the oil game, spending $3.1-billion (U.S.) to buy property in Texas’s Eagle Ford zone. This gave the company six key resource plays, down from about two dozen when Mr. Suttles took the helm.
Sherri Brillon, the company’s chief financial officer, noted the company is no longer outspending its cash flow, and expects to generate about $500-million of free cash flow this year.
Now, with the company’s plan unfolding quickly and cash flow growing, the market is pressing Encana on whether it will increase its dividend, add to its budget, or make more acquisitions.
“Actually, the first thing, Sherri is trying to find a bigger closet to put all the money in,” Mr. Suttles said.
But despite this enthusiasm, the company posted a profit of $271-million (U.S.) in the quarter, down from $730-million in the same frame last year. Cash flow, which is used as a guideline to measure a company’s ability to fund its operations, rang in at $656-million, or 89 cents a share, down from $665-million or 90 cents a share, last year.
Encana, however, jacked up its financial expectations for 2014 on Thursday. It predicts total cash flow will reach between $3.4-billion and $3.6-billion this year. It previously expected cash flow to total between $2.9-billion and $3-billion. Encana expects to spend between $2.7-billion and $2.8-billion this year, with the increase partly owing to its new Eagle Ford assets.
The company also increased its production expectations. It now plans to produce between 86,000 barrels of oil, condensate, and natural gas liquids a day and 91,000 barrels a day this year. Encana spit out 29,000 barrels of these products a day from its five main plays at the end of last year, which preceded the Eagle Ford acquisition.
Encana’s board chopped the company’s quarterly dividend to seven cents from 20 cents in November. Mr. Suttles cautioned the market not to expect an immediate reversal of this decision. Instead, he said, the company will hold off until operating cash flow proves it can sustain the payments.