Encana the latest oil company to slash 2015 capital spending plans

Encana Corp. (NYSE: ECA) (TSX: ECA) announced along with its year-end 2014 earnings report on Wednesday that the company is cutting its capital-spending budget by 24 to 26 percent for 2015.

Calgary, Alberta-based Encana, a significant oil and natural gas producer in Northern Colorado, said it expects to spend between $2 billion and $2.2 billion this year, lowering the range by $700 million from its projections made just two months earlier.

The company did not specify what portion of the reduced spending would come in Colorado.

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The company said it expected about 80 percent of its spending, or approximately $1.725 billion, to come in its “highest-margin” production plays – the Permian and Eagle Ford in Texas and the Montney and Duverney in Canada. That leaves about $275 million to $475 million for its plays in the Denver-Julesburg Basin, the San Juan in New Mexico and the Tuscaloosa Marine Shale.

In December, the company had also estimated that 80 percent of its spending would come in the same four plays, implying that the cuts would be proportional.

Encana is the latest big oil and gas producer to announce major spending cuts for 2015 as crude oil prices continue to hover around $50 per barrel. Anadarko has said it plans “significant cuts,” while Noble Energy last week announced it plans to reduce capital spending by 40 percent in 2015 from 2014 levels.

“We’re responding decisively and prudently to the current low commodity price environment,” Encana president and CEO Doug Suttles said in a prepared statement. “Our priority is to maintain our solid balance sheet and financial flexibility while preserving the long-term value of our portfolio by investing in our most strategic assets.”

Encana turned in a 2014 net profit attributable to common shareholders of about $3.4 billion, or $4.58 per share, 14 times 2013’s earnings of $236 million. But fourth-quarter operating earnings of $35 million, or 5 cents per share, were down 85 percent from the same period a year earlier and fell well short of analysts’ expectations.

That was despite fourth-quarter production that averaged 106,400 barrels per day, a 61 percent year-over-year increase.

In November, Encana closed the $7.1 billion purchase of Texas-based Athlon Energy Inc., which gives the company a sizable oil position in the Permian Basin. But Encana also reduced its workforce by 25 percent during 2014, helping lead to $150 million in savings as part of a major restructuring.

Also on Wednesday, Encana declared a 7 cents per share cash dividend payable on March 31 to shareholders of record as of March 13. Encana shares were up nearly 4 percent on the New York Stock Exchange to $13.51 in afternoon trading.

“The transformation of Encana occurred at a pace that exceeded even our own expectations, and our accomplishments in 2014 shouldn’t be overshadowed by today’s low commodity price environment,” Suttles said. “We resized the company, focused our capital investment on our most strategic assets and enhanced operational performance.”