EnCana Posts 150% Profit Gain, Sanctions Oilsands Expansion
By James Stevenson
25 Jul 2006 at 10:55 AM EDT
CALGARY (CP) -- Posting a 150% increase in second-quarter profits to $2.16 billion, EnCana Corp. [NYSE:ECA;TSX:ECA] said Tuesday that it will proceed with two expansions to its oilsands operations despite a 10% increase in costs.
EnCana, one of North America's largest natural gas producers, attributed its aggressive hedging policy, increasing gas sales and one-time gains for raising quarterly earnings to $2.55 per share, compared to 94 cents per share the previous year.
Cash flow soared 22% to $1.8 billion.
''In the second quarter of 2006, we continue to post strong financial results and our production growth is in line with our internal 2006 budget,'' chief executive Randy Eresman told analysts.
EnCana remained tight-lipped on its strategy to find new partnership and refining arrangements for its oilsands developments, saying that a decision would be made sometime in the next three months.
But the company still approved two 30,000-barrel-per-day expansions at its Foster Creek oilsands project in northeastern Alberta, designed to boost production at the facility to 120,000 barrels per day by the end of 2009.
Eresman also revealed that the expected costs for each of the Foster Creek expansions are now 10% higher since last November's estimates, to about $330 million.
Future developments at the company's less developed Christina Lake and Borealis oilsands sites would cost even more, he added.
''Those initial developments for commercial projects would be somewhat higher than that,'' Eresman said.
EnCana is the latest energy company to boost the expected price tag for developing oilsands projects, as the cost for everything from steel to labour in the overheated economy of northern Alberta continues to soar.
Earlier this month, Nexen Inc. [NYSE:NXY;TSX:NXY] said its Long Lake project would cost 10 per cent more to about $4.2 billion.
Shell Canada [TSX:SHC] is also reviewing its oilsands expansion strategy after warning the market of significantly higher costs - which partner Western Oil Sands [TSX:WTO] said could go as much as 50% higher to about C$11 billion for an extra 100,000 barrels per day.
EnCana began searching for partners for its oilsands operations last year, looking for companies with existing North American refining capacity that could upgrade its heavy oil instead of having to build expensive new infrastructure.
Eresman said Tuesday that the oilsands expansions were ''long-term projects'' that needed to proceed even before a final decision was made on a partnering strategy.
''Once you have the momentum on these projects, you just want to keep on rolling along. It is very disruptive to the staff, to the people, to the industry to be constantly changing timing of these type of projects,'' he said.
''It ends up costing you a lot more in the end.''
Eresman reiterated his belief that inflationary pressures on the oilpatch were beginning to slow, thanks in large part to a slower pace to Canadian drilling as natural gas prices continue to slide downwards.
But EnCana said Tuesday that its U.S. operations are still experiencing strong upward cost pressures.
As a result, company-wide inflation this year is expected to be between 12 and 18 percent on capital and operating costs.
During the second quarter, EnCana's natural gas sales increased five percent to 3.36 billion cubic feet per day while production at its key resource plays rose 12 percent.
The company's quarterly results were also boosted by several one-time items, including $582 million on the sale of discontinued operations. That comprised an $814-million gain on the sale of natural gas storage assets and a $232-million net loss for expected final settlement of the sale of its assets in Ecuador.
EnCana also recorded a C$457-million gain due to lower federal and provincial tax rates.
The company also continues to use proceeds from asset sales to buy back its shares. In the first half of 2006, it had re-purchased 43.7 million EnCana shares, representing 5.1% of the company.
Eresman said EnCana was not hunting for large acquisitions, including the for-sale assets of Anadarko Canada [NYSE:APC], which are estimated to fetch upwards of C$5 billion.
EnCana's name had been bandied about as a possible suitor for those properties, along with Talisman Energy [TSX:TLM].
© The Canadian Press 2006
