January 10, 2009 at 3:25 pm #3242
EnCana trims 2009 capital budget amid lower oil prices – Update
Thu. December 11, 2008;
addthis_pub = ‘tradingmarkets’;
New Release by Larry Connors
(RTTNews) – Canada-based oil and gas company EnCana Corp. (ECA, ECA.TO) on Thursday slashed its capital budget for 2009 from the preceding year due to falling commodity prices and the economic uncertainty. The company also lowered its 2008 cash flow outlook to reflect the dramatically lower Chicago crack spreads and WTI oil prices experienced in the fourth quarter. According to the company, the combination of the two reduced realized margins and inventory values in downstream operations by about $300 million.
The company said that it has designed a capital program for 2009 with the flexibility to adjust investment by about US$500 million, up or down, depending on how economic circumstances unfold during the year.
For 2008, EnCana lowered its outlook for cash flow and now expects cash flow to range between $9.4 billion and $9.6 billion, or $12.50-$12.80 per share. While reporting its financial results for the third quarter in October, the company had narrowed its 2008 outlook for total cash flow to a range of $10 billion-$10.4 billion, or $13.30-$13.85 per share.
The company also lowered its outlook for full-year operating cash flow to $11.5 billion-$12.0 billion from the prior range of $11.9 billion-$12.7 billion. Total capital investment for the 2008 is now expected to be $7.4 billion.
For 2009, EnCana said it was planning a conservative, prudent and flexible capital program that targets total natural gas and oil production at approximately 2008 levels and advances its multi-year projects. Citing the economic uncertainty, the company said it has designed a capital program with the flexibility to adjust investment by about US$500 million, up or down, depending on how economic circumstances unfold during the year.
Randy Eresman, EnCana’s President & Chief Executive Officer, said, “Depending on market conditions, the company may divest between $500 million and $1 billion of non-core assets. If prices are weak in 2009, we expect to invest less and sell fewer non-core assets, resulting in free cash flow at the lower end of the forecast range. If prices strengthen, we expect to invest more and sell more non-core properties, resulting in free cash flow at the higher end of the forecast range.”
The company also forecast a lower capital budget of $6.1 billion for 2009, down from a budgeted $7.4 billion in 2008. The company said that it plans capital investment of about $6.1 billion, and expects to generate about $7.7 billion in cash flow as well as about $1.6 billion in free cash flow. Cash flow could increase with planned divestitures, the company said.
Eresman added, “In these challenging economic times, we are highly focused on key business objectives: maintaining financial strength, generating significant free cash flow, further optimizing our capital investments and continuing to pay a stable dividend to shareholders – currently $1.60 per share annualized, which at the current share price results in a yield of about 3.4 percent.”
EnCana’s peer Petro-Canada also said on Thursday that its board has approved a capital and exploration expenditure program of up to $4.0 billion for the year 2009, which is down significantly from the previous year in response to current market conditions. The capital-spending program for 2009 includes $2.1 billion for growth projects, exploration and new venture developments and $1.3 billion to replace reserves in core areas.
EnCana expects 2009 cash flow to range between $7.1 billion and $8.3 billion, or $9.50-$11.00 per share, lower than its forecast for 2008 cash flow.
The company plans to invest about $4.5 billion, or about 60% of cash flow forecast for 2009, to maintain total natural gas and oil production at approximately 2008 levels with investment directed primarily at key resource plays.
EnCana also plans about $1.6 billion of capital investment in long-term production and refining assets. These include continuing to build the Coker and Refinery Expansion, or CORE project at the Wood River refinery in Illinois, expansions of upstream oil projects in northeast Alberta, development of the Deep Panuke natural gas project offshore Nova Scotia and other long-term upstream projects with substantial future growth potential.
EnCana expects that cash flow and divestiture proceeds for 2009 will significantly exceed capital expenditures, resulting in free cash flow of between $2.0 billion and $2.7 billion, well in excess of the company’s $1.2 billion current annualized dividend.
The company has hedged about 2.6 billion cubic feet per day, or Bcf/d, of expected gas production from January to October 2009 at an average Nymex equivalent price of about $9.13 per Mcf. The company noted that the price hedging strategy will help reduce uncertainty in cash flow during periods of commodity price volatility.
Oil prices have dropped about $105 since scaling historic highs above $147 in July on mounting evidence of slowing global economic growth and energy-demand. Light sweet crude for January delivery ended the day at $43.52, up $1.45 on the day.
The International Energy Agency, or IEA, said on Thursday that it expects global oil demand to shrink this year for the first time in 25 years. The developed countries’ watchdog agency said global consumption will contract this year by 200,000 barrels a day, or 0.4% down by 350,000 barrels to 85.8 mb/d. In the fourth quarter of this year, demand will shrink by 1.6 million barrels a day, or 1.8%.
EnCana stated that it has a very strong balance sheet. As at November 30, 2008, about 82% of the company’s outstanding debt was comprised of long-term, fixed-rate debt with an average remaining term of more than 14 years. Long-term debt maturities in 2009 are $250 million and are $200 million in 2010. In addition, at November 30, 2008, EnCana had $2.6 billion in unused credit facilities.
In October, EnCana announced a jump in third-quarter profit, citing solid production growth and higher commodity prices over the year-ago period. Net income climbed to $3.55 billion, or $4.73 per share, from $934 million, or $1.24 per share, in the year-ago period. Revenues surged to $10.77 billion from $5.6 billion in the previous year.
Also in October, EnCana put a plan to split itself into separate gas and oil businesses on account of the financial market turmoil that would have slashed the market value of both entities.
ECA closed Wednesday’s regular trading session on the NYSE at $46.97, up $2.71 on a volume of 4.81 million shares. The stock has been trading in a range of $34.00-$99.36 in the past 52 weeks.
ECA.TO closed Wednesday’s regular trading session on the Toronto Stock Exchange at C$59.64, up C$3.61 on a volume of 4.56 million shares. In the 52-week period, the stock has been trading in a range of C$41.36-C$97.81.
January 10, 2009 at 3:36 pm #6361
FYI – WRN Woodriver & Borger Coker Projects do not seem to be impacted of course, but looks like EnCana is going to do some asset sales to help cash flow.
Current / short term CA Crude glut (see previous email CA Conventional Crude discount WTI) is helping I am sure with 4Q08 & 1Q09 revenue/earnings.
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