The newly formed EnCana Corp. said second-quarter profit beat expectations as output climbed in the face of lower prices. EnCana, created by the takeover of Alberta Energy by PanCanadian in April, also said it expected to spend a hefty C$5 billion on operations this year in Canada, the United States, Ecuador and the North Sea, although the investment included proceeds of C$2 billion from expected asset sales. But chief executive Gwyn Morgan said EnCana's first quarter after the merger was not without disappointments.
Those were led by the decision to shut its Houston marketing unit following revelations it engaged in sham energy trades when it was run by PanCanadian, resulting in a C$49 million charge to earnings from discontinued operations. In April, EnCana reduced PanCanadian's reported revenue and expenses after discovering the so-called round-trip trades, a major focus of U.S. regulatory agencies probing trading irregularities in the energy industry. Executives also lamented the slow regulatory process for Deep Panuke, its major Nova Scotia gas project, and delays acquiring land in Ecuador as it races to complete a key export pipeline and lower-than-forecast production from the Syncrude Canada Ltd. oil sands plant due to an extended maintenance turnaround.
"But overall in our inaugural quarter, EnCana's progress far outpaced these temporary setbacks and EnCana's merged teams delivered tremendous results in the quarter," he told said. EnCana earned C$459 million, or 97 Canadian cents a share in the quarter. It did not provide comparative 2001 figures. Results included a gain of C$134 million, or 29 Canadian cents a share, from the impact of the strong Canadian dollar on its U.S.-dollar denominated debt. Excluding the gain, earnings were C$325 million, or 68 Canadian cents a share, which beat an average estimate of 54 Canadian cents among analysts polled by Thomson First Call. Cash flow, a key measure of an oil company's ability to fund its development, was C$938 million, or C$2 a share. Revenues totaled C$2.7 billion.
Morgan said the integration of the company was complete and EnCana was on track to meet 2002 production targets. Total output in the quarter rose 10 percent to 693,104 barrels of oil equivalent a day, the company said. Natural gas sales climbed 12 percent from the combined firms' second quarter 2001 volumes to 2.58 billion cubic feet a day, while oil and gas liquids output rose 7 percent to 263,076 barrels a day. The firm's results were tempered by a drop in gas prices due to weakened North American demand and high inventories. The average price fell 38 percent to C$4.02 a thousand cubic feet. Its average oil price rose 8 percent to C$31.48 a barrel, mostly because of improving markets for Canadian heavy crude.
EnCana forecast oil and gas sales in 2003 to rise about 13 percent above the midpoint of the 2002 forecast, reaching between 775,000 and 825,000 barrels of oil equivalent per day. Spending this year was to include C$3.5 billion for onshore North American operations, C$600 million for offshore and international operations, C$700 million for new ventures and exploration and C$250 million for its energy marketing and pipeline and storage business. But the total was expected to be partly funded by C$500 million worth of exploration and production asset sales and C$1.5 billion of pipeline sales.
Earlier this month EnCana said it was seeking buyers for the Alberta-Illinois Express oil pipeline and its 70 percent interest in the Cold Lake, Alberta, pipeline. Morgan said proceeds would be funneled into exploration and production opportunities which promise higher rates of return.