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EnCana Corporation Third Quarter Recap
EnCana Corporation (NYSE:ECA) reported respectable production growth in the third quarter of 2010, but was forced to reduce guidance for the full year as shortages in oil services capacity forced the deferral of some domestic drilling. Although some investors were clearly disappointed with this action, it may be the best long-term method of managing cost inflation in the onshore oil services market.
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Earnings Summary
EnCana Corporation reported net earnings of $569 million, or $0.77 cents per share in the third quarter of 2010. These numbers contained two special items - a $331 million unrealized gain from hedging and a $140 million foreign exchange gain. Excluding these two items the company reported operating earnings of $98 million.
Gains and losses on hedging are fairly common for exploration and production companies, which hedge part of its production to deal with volatile pricing in commodity markets. Pioneer Natural Resources (NYSE:PXD) reported an unrealized gain of $84 million, or $0.71 per share in the second quarter of 2010.
EnCana Corporation reported total production of 3.3 billion cubic feet equivalent per day in the third quarter of 2010, up over 15% from the same quarter of 2009. Although this is fairly high growth, especially for a company of this size, EnCana Corporation disappointed investors with a reduction in production guidance for the full year.
Production
EnCana Corporation now estimates that 2010 production will come in at 3.315 billion cubic feet equivalent per day, down by 50 million cubic feet per day from the previous estimate.
The company is delaying $200 million in capital spending originally planned for 2011 as it faced capacity shortages for hydraulic fracturing services. This shortage was particularly pronounced in the Haynesville Shale in Louisiana and Texas.
Despite the difficulty that EnCana Corporation had in obtaining completion services, the company still drilled 32 net wells in the Haynesville Shale during the third quarter of 2010, bringing the total for the year to 73 net wells.
Comstock Resources (NYSE:CRK) also faced delays in obtaining completion services in the Haynesville Shale region. The company is dealing with the issue by contracting for a dedicated fracturing crew in 2011.
Schlumberger (NYSE:SLB), which is a major provider of oil services in North America, confirmed this tightness in the market when it reported earnings for the third quarter of 2010. The company said that operating margins in the U.S. land segment increased by 900 basis points in the quarter, as a result of "higher activity and better pricing."
The Bottom Line
EnCana Corporation deferred some drilling and reduced production estimates for 2010, disappointing short-term investors that focus on this metric. The decision by the company may be the best one in the long term to deal with soaring costs for oil services. (To learn more, see our Oil And Gas Industry Primer.)
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IN PICTURES: 5 Tips To Reading The Balance Sheet
Earnings Summary
EnCana Corporation reported net earnings of $569 million, or $0.77 cents per share in the third quarter of 2010. These numbers contained two special items - a $331 million unrealized gain from hedging and a $140 million foreign exchange gain. Excluding these two items the company reported operating earnings of $98 million.
Gains and losses on hedging are fairly common for exploration and production companies, which hedge part of its production to deal with volatile pricing in commodity markets. Pioneer Natural Resources (NYSE:PXD) reported an unrealized gain of $84 million, or $0.71 per share in the second quarter of 2010.
EnCana Corporation reported total production of 3.3 billion cubic feet equivalent per day in the third quarter of 2010, up over 15% from the same quarter of 2009. Although this is fairly high growth, especially for a company of this size, EnCana Corporation disappointed investors with a reduction in production guidance for the full year.
Production
EnCana Corporation now estimates that 2010 production will come in at 3.315 billion cubic feet equivalent per day, down by 50 million cubic feet per day from the previous estimate.
Despite the difficulty that EnCana Corporation had in obtaining completion services, the company still drilled 32 net wells in the Haynesville Shale during the third quarter of 2010, bringing the total for the year to 73 net wells.
Comstock Resources (NYSE:CRK) also faced delays in obtaining completion services in the Haynesville Shale region. The company is dealing with the issue by contracting for a dedicated fracturing crew in 2011.
Schlumberger (NYSE:SLB), which is a major provider of oil services in North America, confirmed this tightness in the market when it reported earnings for the third quarter of 2010. The company said that operating margins in the U.S. land segment increased by 900 basis points in the quarter, as a result of "higher activity and better pricing."
The Bottom Line
EnCana Corporation deferred some drilling and reduced production estimates for 2010, disappointing short-term investors that focus on this metric. The decision by the company may be the best one in the long term to deal with soaring costs for oil services. (To learn more, see our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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