Encana closer to finding new CEO, Q1 operating income beats estimates

CALGARY – Encana Corp. expects to finish its hunt for a new CEO at the end of June, the natural gas giant said Tuesday after it reported better-than-expected first-quarter results.

The company has narrowed down more than 150 names to a short list comprising both internal and external candidates to replace Randy Eresman, who left abruptly at the beginning of this year.

Three candidates from within the company have thrown their hats into the ring, said Clayton Woitas, who is serving as CEO on an interim basis.

Speaking to reporters following the company’s annual general meeting, Woitas confirmed that chief financial officer Sherri Brillon is in the running. Brillon, who was sitting to the left of Woitas during the news conference, smiled.

“We are encouraged by the quality of candidates and we’re confident we will find the best possible person for the job,” Woitas said on a conference call with analysts earlier.

Woitas declined to say how many names are on the short list.

Chairman David O’Brien is to step down once a new CEO has been installed. Woitas will then take O’Brien’s place as chairman.

The update came as Encana posted first-quarter operating earnings of US$179 million or 24 cents per share. During the same period a year earlier, operating earnings — deemed a better measure of Encana’s underlying performance — were $240 million, or 33 cents per share.

The consensus estimate had been for nine cents per share of operating income, according to Thomson Reuters.

On a net basis, Encana posted a US$431-million loss or 59 cents per share due to a $266-million unrealized hedging loss and $101 million in foreign exchange losses compared to a year-earlier profit of two cents per share or $12 million, when those non-operating items showed gains.

Revenue fell to $1.06 billion from $1.8 billion a year earlier.

Years of persistently low natural gas prices have taken their toll on Encana, which is almost exclusively focused on that commodity.

One way to cope has been to chase after natural gas liquids, which fetch a much better price than ordinary dry natural gas.

Encana finished 2012 producing about 37,000 barrels of liquids per day, and expects to be producing between 70,000 and 75,000 barrels from shale formations across Canada and the U.S. by the end of this year.

Very little of that is expected to come from early-stage developments.

“Let me stress, that doesn’t mean we are disappointed with the results of our evaluation program. We are just taking a measured and conservative approach to accounting for contribution from these plays,” said Woitas.

Natural gas prices on the New York Mercantile Exchange appear to be firming up to above US$4 per 1,000 cubic feet, which would be good news for Encana.

But the company is being careful not to get too excited about the improvement.

“We wouldn’t want to make long term predictions on short-term price movement, either up or down,” he said.

“Just because natural gas prices are up 20 per cent in the last month, you just can’t activate the drilling rigs in the field that quickly.”

The company has entered contracts to sell some of its gas at set prices as a means to cushion itself against price volatility.

Next year it has hedged about 1.5 billion cubic feet per day — or half of its production — at an average price of $4.19.

Cost-cutting will be a major focus for Encana this year.

The company is targeting between $100 million and $150 million in annual cost reductions over the next few years.

“We have agreed across the corporation that we will manage attrition through internal placement as much as possible, rebalance workloads, retain only critical consultants and contractors and review travel and expense policies,” said Brillon.

Encana also aims to shed about $500 million to $1 billion in assets this year, with the buyers seen to mainly be those looking at liquefied natural gas export opportunities.

Assets are for sale in Western Canada as well as the Southeastern United States.

Woitas said 2012 was a “knock ’em out of the park” year when it came to joint ventures and asset sales, but this year it’s more of a “buyer’s market” with so many of Encana’s peers also putting their assets on the sale block.

In December, Encana inked a $2.2-billion joint-venture deal with a subsidiary of PetroChina to develop gas from the Duvernay shale formation in west-central Alberta.

In February of last year, Encana reached a deal to sell 40 per cent of its undeveloped Cutbank Ridge lands in British Columbia to Mitsubishi Corp. of Japan for $2.9 billion.

Encana shares closed down 33 cents, or 1.7 per cent, to $18.96 on the Toronto Stock Exchange.