UPDATE 4-Encana shares plunge as production forecast falls short

Thu Feb 14, 2013 5:15pm EST
 
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* Q4 operating profit 40 cents/shr vs 36 cents expected
    * Q4 oil, liquids production up 51 pct
    * Shares down 6.6 pct on lower 2013 liquids forecast
    * Company lowers 2013 capex forecast

 (Adds details on CEO search in final paragraphs; closes shares)
    By Scott Haggett and Krithika Krishnamurthy
    CALGARY, Alberta Feb 14 (Reuters) - Encana Corp,
Canada's biggest natural gas producer, said on Thursday its
output of crude oil and natural gas liquids will double this
year, but that target still fell short of investor expectations
and its shares dropped nearly 7 percent.
    The company, which reported a 28 percent rise in operating
earnings, is looking to increase production of oil and liquids
as they fetch much higher prices than natural gas. Natural gas
prices remain low because of abundant shale-gas supplies.
    Encana expects average oil and liquids production for this
year will be 50,000 to 60,000 barrels per day, up from an
average 31,000 bpd in 2012. But the new target was below its
previous forecast of 60,000 to 70,000 bpd because the company
lowered its capital spending forecast to between $3 billion to
$3.2 billion, down from a previous target of $4 billion to $5
billion.
    "With lower spending comes lower overall production and,
most importantly, a slower build of liquids volumes," Andrew
Potter, an analyst with CIBC World Markets, said in a research
note. 
    The company's shares were down C$1.28, or 6.6 percent, at  
C$18.20 on the Toronto Stock Exchange, their lowest level since
April 2012.     
    The company plans to direct 80 percent of its capital budget
this year towards drilling for oil and gas-liquids but expects
little change in its natural gas production in 2013, forecasting
output of 2.8 billion to 3 billion cubic feet per day, compared
with 3 bcf/d last year.
    "We have an extensive portfolio of emerging oil plays that
are under evaluation and a range of established plays that can
be profitable at current commodity prices, and those are the
areas where we plan to spend our time and money in 2013," said
interim Chief Executive Clayton Woitas.
    U.S. natural gas prices rose 2 percent from last year
to average $3.54 per million British thermal units, well below
the $14 per mmBtu they traded at in 2005.
        
    OPERATING PROFIT RISES
    Encana's fourth-quarter operating income rose 28 percent to
$296 million, or 40 cents per share, as hedging helped realize
higher prices for gas. Analysts were expecting 34 cents per
share, according to Thomson Reuters I/B/E/S.
    The net loss narrowed to $80 million from $476 million a
year earlier.
    Natural gas production fell 15 percent in the fourth quarter
to 2.9 bcfd, while fourth-quarter liquids production rose 51
percent to 36,200 bpd.
    Encana's cash flow, a key measure of its ability to fund new
projects and drilling, fell 17 percent to $809 million, or $1.10
per share.
    The U.S. Department of Justice is investigating whether the
company illegally colluded with Chesapeake Energy Corp 
to lower the price of exploration lands in Michigan.
     Encana's CEO Randy Eresman retired unexpectedly in early
January. The company said it expects the search
for a new chief executive to last from three to six months.
    "We want to ensure that we have closely examined a full
suite of potential candidates," Woitas said on a conference
call. "We want to get the best possible candidate for the job,
whether that person is external or internal to the company."
    ($1=$1.00 Canadian)

 (Editing by Sofina Mirza-Reid; Editing by Peter Galloway)