10/24/2012 06:30 EDT | Updated 12/24/2012 05:12 EST

Encana posts US$1.24-billion Q3 loss, expects joint-venture announcements soon

CALGARY - Encana Corp. reported a $1.24-billion third quarter net loss on low natural gas prices, but says it's on track to meet its targets for the year and announce joint venture deals soon.

The loss, which amounted to $1.69 per share, compared with a year-earlier profit of $459 million, or 62 cents per share.

Natural gas prices averaged $2.81 per 1,000 cubic feet during the quarter — a bit of an improvement from 10-year lows but still far from a healthy level.

Encana anticipates a recovery to around $3.50 next year, CEO Randy Eresman told a conference call Wednesday to discuss the quarterly results.

"Since the beginning of the year, you've heard me say that we are cautiously optimistic about a natural gas price recovery this year. We continue to see evidence on both the demand and supply front that supports this assertion."

Most of the quarterly loss was attributed to a non-cash impairment charge that the Calgary-based company says doesn't affect its operating earnings or cash flow — although they were down sharply from last year.

Encana's operating earnings totalled $263 million or 36 cents per share, down from $389 million or 53 cents per share in the comparable 2011 period. Encana's cash flow fell to $913 million or $1.24 per share — down from nearly $1.2 billion or $1.60 per share a year earlier.

Analysts were on average expecting adjusted earnings of 26 cents per share, net earnings of 21 cents per share and revenues of US$1.47 billion, according to estimates compiled by Thomson Reuters.

Encana's stock slipped 2.7 per cent to $21.96 in afternoon trading on the Toronto Stock Exchange.

Since it spun off its oil and refinery assets into Cenovus Energy Inc. (TSX:CVE) in 2009, Encana has been focused exclusively on developing natural gas.

Encana and other producers have been grappling with a North American oversupply of natural gas and limited opportunities to export around the globe — particularly the Asia-Pacific region.

Among other things, the Canadian producers have formed partnerships with foreign companies that help pay for the cost of drilling and development in return for minority ownership of the producing assets and a share of the output.

"We expect to be in a position to announce results on one or more of these initiatives in the near future," said Eresman, who said interest in its assets has been "tremendous" so far.

"However, there are significant assets available for joint venture in both the Canadian and U.S. marketplace. As such, this may limit the size of the packages that can be dealt on and extend the time that it may take to complete a transaction."

For instance, a package encompassing three separate zones in the southern United States — the Mississipian Lime, Tuscaloosa Marine and Eaglebine — might be too big to interest a single player, so potential buyers are now allowed to bid on them separately.

Encana has a "high degree of confidence" it can meet its 2012 net divestiture target of $3 billion and be "nicely positioned" with at least $2.5 billion in cash on its balance sheet next year, he said.

For 2013, Eresman said Encana aims to bring in another $1 billion to $1.5 billion in funds through joint ventures and sales.

There's also been a shift to extracting natural gas liquids, which currently command a higher market price that dry gas.

Encana said Wednesday that its oil and natural gas liquids production average more than 30,000 barrels per day, up 6,000 from a year earlier.

Average natural gas production volumes were 2.9 billion cubic feet per day — down about 460 million cubic feet per day due to voluntary capacity reductions.

Encana is 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 drastically higher price overseas than it does in the oversupplied North American market. Shipments are targeted to begin in 2015.

Encana launched an internal probe in June after allegations surfaced that it and a U.S. rival colluded to suppress land prices in Michigan.

In September, Encana said its board of directors found no evidence the company and Chesapeake Energy discussed ways to avoid bidding against one another for land leases 2010.

Probes by the U.S. Department of Justice and Michigan's attorney general are ongoing and Encana says it's co-operating.