A pump jack is seen in this file photo.© Todd Korol / Reuters/Reuters
Encana Corp., the North American natural gas giant, is backing off its aggressive plans to chase more valuable products such as butane and propane, instead approaching its hunt for these commodities with more caution.
The Calgary-based company said Thursday it expects to spend between $3-billion (U.S.) and $3.2-billion this year, down from its previous target of between $4-billion and $5-billion.
In turn, it lowered its production targets for oil and natural gas liquids and investors responded by knocking down its share price. Encana closed at $18.20 on the Toronto Stock Exchange, down 6.6 per cent.
Companies such as Encana and Talisman Energy Inc. flocked to natural gas liquids and oil about two years ago, hoping these products would protect the companies from the pain brought on by record-low natural gas prices. The rush to NGLs and oil, however, created a glut in some parts of the continent, and now companies are nervous about spending too heavily on these products.
"We just dialled down the pace of activity," Sherri Brillon, Encana's chief financial officer, said in an interview. "We're very encouraged with all of the emerging plays, the activity we undertook at the end of last year. But at this stage in the game, we're trying to dial down the pace and give more time to assess the results."
Encana reported Thursday that it lost $80-million in the fourth quarter, improving on its loss of $476-million in the same quarter in 2011. However, its cash flow dropped to $809-million from $983-million.
It said it expects to produce between 50,000 and 60,000 barrels of oil and liquids per day in 2013. It previously expected to churn out between 60,000 and 70,000 barrels per day. It is pulling back on oil and rejecting ethane, a natural gas liquid, in the United States.
It is hunting for a new chief executive officer and the pause will give the new leader a chance to create a new strategy, Ms. Brillon said. The budget could be adjusted in the second half of the year, after Encana has a chance to review its performance in the first six months of 2013, she noted.
Encana plans to spend 80 per cent of its budget in light oil and liquids rich plays. The remaining 20 per cent will be spent on natural gas fields.
With files from Reuters
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LANGUAGE WATCH
Encana Corp. finally gave analysts and investors exactly what they want in a conference call: a little more colour.
The natural gas firm's fourth-quarter call Thursday came with a streak of blue. A male executive cursed at an analyst, calling him an unsavoury name preceded by a word which brings emphasis to the insult. It was a whisper just loud enough for the microphones to pick up. Encana quickly and unequivocally apologized.
Near the end of the hour-long conference call, Phil Skolnick, an analyst at Canaccord Genuity, asked four questions. In his last question, he asked whether Encana believed Canada's new foreign investment rules would prohibit a takeover of the company. It took four seconds before interim CEO Clayton Woitas responded. "The answer would be no," he said. Four seconds later, someone uttered profanities.
Encana said about 20 people were in the room and it does not know who swore. "All we can do is say we're sorry. Something like that should never be said. That's just unacceptable from our perspective," Encana spokesman Jay Averill said.