Encana cuts losses in 2016, sees 2017 as a growth year

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Encana Corp. is making the transition to building up operations after years of paring them during the oil and gas downturn, its chief executive officer says.

Encana, which reported a smaller fourth-quarter loss on Thursday, has nudged up planned capital spending in 2017 as it concentrates on its main areas – two in Texas and two in Western Canada – in the latest show of increasing confidence in an industry recovery.

The pivot comes after the Calgary-based company cut operating costs sharply. Now, CEO Doug Suttles expects those expenses to remain flat despite surging demand for rigs and oil-field services in the Permian region of Texas and Montney in British Columbia and Alberta. Encana's other main operations are in the Eagle Ford shale of Texas and Duvernay in Alberta.

"I call it the bounce," Mr. Suttles told analysts in a conference call. "Our top-line production in the middle of the year goes from decline to growth, then we have strong growth in our core assets of 20 per cent or greater [between the fourth quarters of 2016 and 2017]."

Encana's transformation to a more focused oil company under Mr. Suttles was buffeted by the collapse in crude prices that began in 2014. In September, it raised $1-billion (U.S.) in a stock issue aimed at reducing debt and accelerating its development of the Permian shale-oil holdings. The region has been the site of brisk acquisition and drilling activity since last year.

On Thursday, the company said it had increased its overall spending budget to $1.7-billion, at the midpoint of its target range, from $1.6-billion. That would be above expected cash flow, though executives stressed that the company has extensive commodity and foreign exchange hedges in place to reduce the risk.

Over the past year, Encana shares have more than tripled, vastly outpacing the S&P/TSX capped energy index, which rose 43 per cent. Encana stock was off 2 per cent at $16.34 (Canadian) on Thursday.

In the fourth quarter, Encana had a net loss of $281-million (U.S.), or 29 cents a share, compared with a loss a year earlier of $612-million, or 72 cents a share. Revenue fell 20 per cent to $822-million.

The company recorded a full-year net loss of $944-million, or $1.07 a share. That included a $938-million non-cash ceiling test impairment, which reflected reduced profitability of proved reserves, due largely to the fall in oil and gas prices. The shortfall was reduced sharply from the 2015 net loss of $5.2-billion, or $6.28 a share.

Production in the fourth quarter was down 21 per cent to 321,500 barrels of oil equivalent a day. Encana said it expects average production of 320,000 to 330,000 barrels of oil equivalent a day this year, with output of crude oil and condensate, the light hydrocarbon used to dilute bitumen from the oil sands, increasing 35 per cent through the year.