Encana to double liquids output as gas prices stay weak

(Reuters) - Encana Corp , Canada's largest natural gas producer, said output of crude oil and natural gas liquids such as ethane and propane is expected to nearly double this year, helping the company reduce its dependence on low-margin natural gas.

The company plans to direct 80 percent of its capital budget this year towards drilling for oil and gas-liquids. It has a capital spending plan of $3 billion to $3.2 billion for 2013. Gas production is expected to change little this 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.

Encana continues to shift its focus to oil as natural gas prices in the United States remain low. U.S. natural gas prices rose 2 percent from last year to average $3.54 per million British thermal unit (MBtu), well below the $14 per MBtu they traded at in 2005.

Prices hit a decade-low of $1.907 in April as production from North American shale rocks flooded the market due to the advent of a new drilling method called hydraulic fracturing.

LIQUID PRODUCTION

Encana said average production of oil and natural gas liquids is expected to rise to 50,000-60,000 barrels of oil per day (bpd) in 2013 from 31,000 last year.

Gas production will be largely flat at 2.8-3.0 billion cubic feet per day (bcf/d) in 2013 compared to 3.0 bcf/d last year.

Its fourth-quarter operating income rose 28 percent to $296 million, or 40 cents per share, as hedging helped realize higher prices for gas. Analyst 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 2,948 million cubic feet of gas per day (mmcf/d), while 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.

Shares of the Calgary-based company, valued at $14.3 billion, have fallen 11 percent over the past six months. The stock closed at C$19.48 on Wednesday.

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.

(Reporting by Krithika Krishnamurthy in Bangalore and Scott Haggett in Calgary; Editing by Sreejiraj Eluvangal)

Source: http://news.yahoo.com/hedging-gains-boost-encanas-operating-profit-112419544--finance.html

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