Encana (ECA) Is All Set to Grow This Year

Encana Corporation (NYSE:ECA) has set solid footholds for the potential growth in FY2017 following its significant restructuring program, a shift towards higher margin businesses and strong operational efficiencies. In the final quarter of 2016, ECA has beaten earnings estimates by $0.06 per share, while the company has generated earnings of $0.09 per share for the final quarter, compared to a big loss in the same period last year.

Despite lower profits, the company showed strong operational performance in FY2016, allowing it to generate $600 million in cost efficiencies in 2016, relative to the prior year. In addition, Encana achieved several major strategic objectives last year, setting a strong launch pad for its five-year business expansion plan. Its strategy of moving towards higher margin assets and driving efficiencies in every part of its business to strengthen margins seems to be working.

On the other hand, the company has also strengthened its balance sheet by lowering its debt and enhancing its cash position. In 2016, ECA lowered its debt by $1.1 billion, supported by its asset disposals and internal cash generation potential.

At the end of 2016, the company had net debt of $3.4 billion on its balance sheet, while its liquidity position was standing around $5.3 billion, including $4.5 billion in available credit facilities and $834 million in cash and cash equivalents.

“We carried considerable momentum into 2017,” added Suttles. “Through innovation and our relentless focus on efficiency and supply chain management, we expect to hold total year-over-year drilling and completion costs flat despite cost inflation for some services. We expect to significantly increase crude and condensate production throughout the year and deliver strong corporate margin growth.”

This year, Encana plans to invest almost 1.8 billion in growth opportunities, particularly in its four core assets that accounted for the majority of the company’s total production last year.

Its total production is likely to stand around 320,000 BOE/d and 330,000 BOE/d in FY2017. The company expects to increase its crude oil production by 35% this year, while production from four key assets is likely to increase by around 20% over the prior year. Moreover, the company has also mitigated the risk to its production through its strong hedging program.

The author has no position in the above mentioned companies.

Alexander is an analyst for EconomicCalendar.com who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.