CALGARY, Alberta (Reuters) - EnCana Corp (ECA.TO) and its oil sands and refining spinoff Cenovus Energy Inc (CVE.TO) posted their first earnings as separate companies on Thursday, with the pair reporting lower profits but promising substantial production gains.
Both EnCana and Cenovus said their net income fell because of lower oil and gas prices and the costs of the corporate split. However shares in both companies rose as Cenovus said output from its oil sands operations was rising, while EnCana, the biggest Canadian natural gas producer, produced a better than expected profit and lowered costs.
"It was pretty messy quarter and hard to draw comparisons," said Lanny Pendill, an analyst at Edward Jones. "But if you look at some of the key metrics, EnCana is definitely off to a good start."
EnCana, which split off Cenovus to concentrate on natural gas production, said its net income fell 65 percent in the fourth quarter to $233 million, or 85 cents a share. That was down from $671 million, or 89 cents a share, in the final quarter of 2008, due to charges and lower natural gas prices.
The figures are pro forma and exclude Cenovus's results.
Operating income, which excludes most one-time items, fell 32 percent to $373 million, or 50 cents a share, from $546 million, or 73 cents.
The operating result surpassed analysts' average estimate of 42 cents, according to Thomson Reuters I/B/E/S, due to higher than expected production.
EnCana's cash flow fell 38 percent to $930 million, or $1.24 a share, from $1.5 billion, or $2.00.
On a pro-forma basis, EnCana's total production fell to 2.831 billion cubic feet equivalent per day from 3.17 bcfed in the year-before quarter as it shut in some wells because of low prices.
However EnCana said most of those wells have now been returned to service and the company was producing 3.1 bcf of gas a day at the end of January.
Randy Eresman, the company's chief executive, doesn't expect a return to pre-recession pricing for gas, as new shale discoveries boost supplies. However new production techniques like horizontal drilling and fracturing technologies have lowered costs.
"We are seeing that supply can meet demand at a much lower price," Eresman said.
Indeed, EnCana said that production costs at its shale discoveries in Canada and the United States have plunged, with costs in the Haynesville shale region, centered in Louisiana, down 40 percent in the fourth-quarter from a year prior.
Natural gas prices were sharply lower in the quarter, with the benchmark U.S. price down 23 percent from a year earlier at $4.39 per million British thermal units as the recession cut demand while supplies rose. Oil prices, however, strengthened, gaining 29 percent to an average $76.13 a barrel.
The two companies released results that analysts said were muddied by the split, completed at the end of November. Analysts had provided widely varying estimates of their results as they sought to understand how the two companies would perform as separate businesses.
"There is tremendous noise in these numbers given the corporate restructuring with (Cenovus), with the Street's estimates displaying considerable variance," Andrew Potter, an analyst at UBS Securities, wrote of EnCana's results in a note.
Cenovus, whose main business is an oil sands and refining joint venture with ConocoPhillips (COP.N), said its pro-forma net income fell 94 percent in the fourth quarter to $24 million from $380 million in the fourth quarter of 2008 on the costs of the split and charges.
Operating earnings rose to $152 million, or 20 cents a share, from a year-earlier loss of $123 million, or 16 cents.
The company's cash flow was $225 million, or 30 cents a share, compared with a year-earlier cash deficit of $174 million, or 23 cents a share.
Cenovus's oil and natural gas liquids production averaged 114,590 barrels a day, up 11 percent from 103,317 bpd a year earlier.
It also said that production from its largest oil sands project, Foster Creek in northern Alberta, had surpassed 100,000 bpd in December and the company was speeding ahead with the expansion of that project and it Christina Lake site.
Natural gas output fell 13 percent to 765 million cubic feet per day.
Cenovus's shares were up 47 Canadian cents, or 2 percent, at C$25.21 by midafternoon on Thursday on the Toronto Stock Exchange. EnCana shares rose 48 Canadian cents, or 1.5 percent, to C$32.96.
Editing by Rob Wilson