Calgary-based Encana, Canada’s biggest natural gas producer, Friday announced the sale of a major stake in its development property in British Columbia and said it would join other producers in cutting output as demand slows.
Its shares rose as much as five per cent but gave up those gains later as investors focused on the company’s announcement of a fourth-quarter loss.
It closed down 18 cents, or 0.89 per cent, at $19.97 on the Toronto Stock Exchange.
Encana said it is selling a 40 per cent stake in its Cutbank Ridge Partnership to Japan-based Mitsubishi for $2.9-billion.
The partnership holds about 409,000 net acres of Encana's undeveloped Montney-formation natural gas lands in northeastern B.C. with proven undeveloped reserves of approximately 900 billion cubic feet of natural gas equivalent.
Mitsubishi will pay $1.45 billion when the deal closes, which is expected to occur later this month, and invest a further $1.45 billion over the next five years.
"Mitsubishi looks forward to tapping new natural gas supplies for the long-term development and eventual delivery to world markets," said Jun Yanai, CEO of Mitsubishi's Energy Business Group.
The move came amid a slump in gas prices, with the benchmark Canadian AECO spot price last month hitting a 10-year low of less than two dollars a gigajoule.
The company it will immediately cut 250 million cubic feet of daily North American production and could cut by up to 600 million cubic feet, or twenty per cent of last year’s output.
U.S. rivals cut output
It is following the examples of U.S. rivals Chesapeake and ConocoPhillips, which have taken supplies off the market in a bid to reduce a massive oversupply. The oversupply has been caused by technological advances which allow greater production from previously inaccessible shale formations and more recently by warm weather, which has reduced demand for the heating fuel.
In its earnings report, Encana cited an impairment charge of $854 million in reporting a net loss for $246 million or 33 cents per share, compared with a loss of $469 million or 64 cents per share in the same quarter a year ago despite lower 2010 impairment charges of $371 million.
Revenues, net of royalties, totalled $2.46 billion for the three months ended Dec. 31, up from $1.43 billion in the same year-year period.
Meanwhile, the company posted an operating profit of $46 million or six cents per share, down from $50 million or seven cents per share in the year-ago period. Cash flow for the quarter was $946 million, up from $917 million
Analysts polled by Thomson Reuters were on average expecting Encana to earn 13 cents per share on revenues of $1.74 billion.
For the full year, the company reported net earnings of $128 million or 17 cents per share on revenues of $8.46 billion, compared with net earnings of $1.17 billion or $1.58 per share on revenues of $8.87 billion.
"Encana plans to conserve most of the additional financial flexibility provided by this and previously announced transactions during this prolonged period of low natural gas prices," CEO Randy Eresman said in a release.
Encana a partner in planned B.C. export terminal
"Our 2012 investment plan targets a balance between our cash flow, less dividends, and our expected capital investment before acquisition and divestiture activity."
Eresman said the company's capital spending is focused on expanding the exploration and development of oil- and liquids-rich natural gas production while minimizing dry natural gas investments.
The Cutbank Ridge Partnership's lands have proved undeveloped reserves of approximately 900 billion cubic feet of natural gas equivalent.
Encana had been banking on a $5.4-billion cash infusion from a joint-venture deal with PetroChina centred on assets in northeastern B.C. and Alberta. But that deal fell through last June when the two companies couldn't see eye-to-eye on an operating agreement.
The company announced US$3.5 billion in asset sales in 2011. It has sold midstream, or pipeline and processing, assets in Colorado and Alberta, as well as gas producing properties in Texas.
Encana is also a partner in a project to build a liquefied natural gas export terminal in the northern West Coast port of Kitimat, B.C. U.S. firms Apache Corp. and EOG Resources are also involved.
At Kitimat, natural gas piped in from northeastern B.C. will be cooled into a liquid and loaded onto tankers for export to energy-hungry Asian markets. Natural gas fetches a higher price overseas than it does in the oversupplied North American market. Shipments are targeted to begin in 2015.