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Encana and Cenovus: 2 sides of the same coin

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Cenovus profit soars, but not as high as hoped

The former heavy oil division of the Alberta Energy Company (now Encana) vastly grew operational earnings per share in the final three months of its 2013 fiscal year. On a year-over-year basis, operational EPS of $0.28 represents a 460% jump from the nickel in OEPS the company earned in the same period of last year, but analyst expectations were even higher with the average estimate being $0.33 in OEPS. Cash flow per share, arguably the more important metric in oil and gas since it gauges a producer’s ability to find future expansions, was well ahead of expectations of $1.03, coming in at $1.10. Cenovus (CVE-T) is going to give some of that money back to investors in the form of a 10% hike to the quarterly dividend, pushing the payout to $0.2662/sh on a yield of 3.6% Quarterly production of 274,400 barrels of energy equivalent per day was in line with what the Street had forecast. Pushing the results higher was a tiny tax tab of just $3-million (RBC had been expecting $57-million!!) and administration expenses of $81-million coming in 23% below forecasts. Oil sands operating costs were also under control in Q4, coming in at an average of $13.02/bbl or about $0.38/bbl below where analysts had expected. Crude-by-rail also continues to chug forward, with the company on track to grow shipments from an average of 10,000 bpd by the end of 2013 to more than 30,000 bpd by the end of 2014. Cenovus will take delivery of 825 coiled and insulated rail cars later this year (recall Saskatchewan Premier Brad Wall just yesterday blamed the rise in crude-by-rail shipments for his province’s growing grain shipment backlog). Cenovus CEO Brian Ferguson will be on BNN today at 12:30pm ET to explain more about the past quarter and his plan for the year ahead.

Encana profit sinks, but not as low as feared

Canada’s largest natural gas producer saw operational profit dip nearly 25% on a year over year basis to $226-million or $0.31 per share from $296-million or $0.40 per share in Q4 of 2012. Analysts had forecast a far steeper drop, however, with average expectations coming in at just $0.20 in operational earnings per share, so at least one analyst, RBC’s Greg Pardy, expects Encana shares to outperform the broader energy group today. Cash flow per share was also way ahead of expectations at $0.91 versus $0.75 the street had been expecting. The gas giant continued its push into liquids production in Q4, producing an average of 66,000 bpd or 13% of the company’s total production, which was slightly ahead of the 65,000 bpd analysts had been expecting. Natural gas remains the company’s raison d'être (since it spun off its oil assets into what is now Cenovus in 2009), though Canaccord Genuity is taking issue with management’s playing-it-safe hedging strategy. Encana (ECA-T) now has 2.1 billion cubic feet per day (about 80% of its total 2014 gas production from 57% previously) hedged at $4.17 per million cubic foot, which analyst Phil Skolnick warns is “removing its torque to any further strength in gas prices.” This is CEO Doug Suttles second full quarter at the helm since the former BP executive took over last June, and he has taken to YouTube to give more detail on his company’s results, check it out here : https://www.youtube.com/watch?v=z6DiTyE5-9M

Drillers bring analysts delight

Precision Drilling (PD-T) announced Q4 results that blew past expectations, with adjusted earnings per share coming in at $0.25 versus expectations of $0.18. The beat was driven primarily by the company’s U.S. operations, which enjoyed both higher cash margins and overall increased rig activity. Q4 also marked Precision’s first full quarter of international operations, with 11 rigs operating abroad and boosting overall earnings. “Against a backdrop of an improving North American drilling market,” Dan MacDonald at RBC says “this momentum is sustainable for PD going forward.” The RBC analyst is also pleased with Trinidad Drilling’s (TDG-T) plan to spend $315-million in 2014, since that includes four incremental new builds for its international joint venture with Halliburton that will be delivered to Mexico, which is in the process of opening up its previously state-owned monopoly to private sector players. Trinidad’s 2014 capital plan should be fully fundable with cash on hand.

Severe winter weather threatens East Coast energy infrastructure

According to the United States Energy Information Administration, the significant amount of snowfall on the U.S. eastern seaboard will likely damage the electrical distribution system in the region. As of 3:30pm ET on Wednesday, more than 450,000 customers were without power from Florida to Pennsylvania and with more severe weather expected today, the EIA is warning power restoration efforts could proceed more slowly than in ideal conditions. Analysts are speculating this will lead to a spike in natural gas prices on spot markets across the eastern part of North America.

Jameson Berkow is BNN's western bureau chief based out of Calgary. Every weekday morning he researches the top stories affecting commodities and the oil patch, and sends his analysis to the BNN newsroom in Toronto. You can follow him on twitter @crudereporter

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