CALGARY, Alberta (Reuters) - EnCana Corp (ECA.TO) said on Thursday its second-quarter profit fell 16 percent on an unrealized loss on forward natural gas sales contracts, but surging gas prices and production pushed operating results at Canada’s biggest energy company above expectations.
EnCana, which is preparing to split into two separate oil and gas producers by early next year, also increased its forecast for 2008 cash flow by about 7 percent to as much as $11 billion as its gas business exceeds its projections.
Chief Executive Randy Eresman said big gains came despite a slower than expected lift in output in at the company’s Deep Bossier prospect in East Texas, one of several key unconventional gas plays it is developing.
“Despite achieving year-over-year growth of almost 130 percent, expected ramp-up of production is behind schedule,” Eresman told analysts.
However, overall output is ahead of projections as the company has bulked up on acreage in the continent’s hottest shale-gas plays, including the Haynesville in Louisiana, Barnett in Texas and Horn River in British Columbia, he said.
Such prospects are known for huge reserves but they require prolific drilling and high-tech rock fracturing techniques to increase output gradually.
In the quarter, EnCana earned $1.2 billion, or $1.63 a share, down from year-earlier $1.4 billion, or $1.89 a share.
The results included $235 million in unrealized mark-to-market losses from hedging activities, stemming from accounting rules that force energy companies to account for the forward contracts as if they were due immediately.
Operating earnings rose 7 percent to $1.5 billion, or $1.96 a share, from $1.4 billion, or $1.79 a share.
That beat the average forecast among analysts polled by Reuters Estimates by 9 cents a share.
Cash flow, a glimpse into an oil company’s ability to fund development, rose 13 percent to $2.9 billion, or $3.85 a share, from $2.6 billion, or $3.33 a share.
EnCana shares rose 39 Canadian cents to C$73.60 on the Toronto Stock Exchange, representing a gain of 9 percent so far this year.
EnCana’s better than expected results were due to increased gas output, lower cash taxes and strong results from its U.S. refining joint venture with ConocoPhillips (COP.N), analyst Chris Theal of Tristone Capital said.
The showing bodes well for the impending split into a gas-producing firm concentrating on unconventional plays, and an oil sands producer and refiner, Theal said.
“There’s great visibility for the next five years, especially on the unconventional gas side. And in oil sands, the next two phases of the Foster Creek project are on track,” he said. “Both pieces are going to emerge in pretty good shape.
In the quarter, EnCana and its rivals were buoyed by oil prices that soared 90 percent to a record average of $123.80 a barrel. Gas prices in Canada also surged, averaging C$9.68 per gigajoule, a 44 percent gain from 2007.
EnCana’s gas production averaged 3.8 billion cubic feet a day, up 10 percent from the second quarter of 2007. Oil output was 128,000 barrels a day, down 4 percent.
Based on the strong gas showing, EnCana raised its annual forecast for cash flow to a range of $10 billion to $11 billion, or $13.30 to $14.65 a share. That is up from the pervious outlook of $9.6 billion to $10 billion.
The company said it expects full-year gas production to average 3.85 billion cubic feet a day.
Additional Reporting by Ka Yan Ng; editing by Rob Wilson