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Three large Canadian oil companies pumped out first-quarter earnings on Wednesday that mostly missed expectations, but investors were cheered by promises of higher output and other maneuvers to deal with depressed natural gas markets and heavy oil prices that lag international crude by a wide margin.
Profits at Nexen Inc. (NXY-T), which is working to iron out operational bugs after a disappointing 2011, were lower than expected. But production is meeting forecasts as major projects such as the Long Lake oil sands venture in Alberta and Buzzard oil field in the North Sea run more reliably.
Cenovus Energy Inc. (CVE-T), the oil sands producer and refiner, reported higher earnings due to a jump in output and rich refining margins, and Encana Corp. (ECA-T), Canada's largest natural gas producer, benefited from its hedging program as gas prices slumped to 10-year lows.
"Those exposed to North American gas are going to face challenges this quarter, those that have refining operations should continue to do well within that segment, given where margins have been, and those that have more exposure to a Brent oil-price environment will get the higher netbacks, and we've certainly seen that in Nexen's results today," said Lanny Pendill, analyst with Edward Jones.
Nexen appears to be staging a turnaround under interim chief executive Kevin Reinhart after the exit of former CEO Marvin Romanow at the start of this year, Pendill said. It had reported several quarters marred by operational problems.
"Is two quarters a trend? No, but it's certainly headed in the right direction in our view to the extent that they've met production forecasts for the first quarter and they appear to be on track for the second quarter," he said.
Nexen said profit fell 15 percent to $171 million, or 32 cents a share, from year-earlier $202 million, or 38 cents a share. That lagged an average estimate among analysts of 51 cents a share, according to Thomson Reuters I/B/E/S.
Production averaged 202,000 barrels per day before royalties, in the midpoint of its estimates. Nexen said it is on track to meet a full-year forecast of 185,000 to 220,000 bpd, with the ramp-up of the recently started Usan oil field off the Nigerian coast and improving performance at Long Lake, which had faced years of operational problems.
"Growth may be slow at this point, but it is an improvement from where the company was last year," said Robert Bellinski of Morningstar. "The company is not in catastrophe mode anymore."
Cenovus's first-quarter profit surged nine-fold to $426 million, or 56 cents a share, from $47 million, or 6 cents a share. Operating earnings, excluding most one-time and unusual items, rose to $340 million, or 45 cents a share, below expectations of 54 cents a share.
Oil and natural-gas liquids production rose 14 percent to average 156,850 bpd, and output from the Foster Creek and Christina Lake steam-driven oil sands projects in Alberta rose 23 percent to about 82,000 bpd net to the company.
Cenovus operates the oil sands projects and two U.S. refineries in a joint venture with ConocoPhillips and is seeking a partner for a new 90,000 bpd development known as Telephone Lake.
Chief executive Brian Ferguson said weak prices for heavy oil were delaying the process, but he offered few details.
Margins at the Borger refinery in Texas and recently refitted Wood River plant in Illinois cushioned the impact of deep discounts during the quarter for Canadian heavy oil. Refining earnings increased by nearly half.
"The performance of their downstream partnership continues to be beneficial to their cash flow stream, causing that to be more stable as a result of the trade off," Bellinski said.
Encana, which has been shutting off some production to cope with depressed North American gas prices, is also searching for a partner as it seeks to accelerate development of higher-value gas liquids projects in Canada and the United States.
The company said first-quarter profit rose to $12 million, or 2 cents a share, from a year-earlier loss of $361 million.
Operating earnings rose 10 percent to $240 million, or 33 cents a share, from $218 million, or 30 cents a share.
Encana's hedging program allowed it to realize an average price of $4.58 per million British thermal units, compared with a New York Mercantile Exchange futures price of $2.74 per mmBtu.
Those risk-management activities contributed $358 million after tax, the company said.
Natural gas production rose 2 percent to 3.27 billion cubic feet per day. In February, Encana said it planned to shut off 250 million cubic feet per day as prices languished, and said reductions could hit 600 million cubic feet a day.
Oil and gas liquids output rise 26 percent to 23,300 bpd, and the company is working to boost that by a wide margin.