CALGARY - Cost-cutting measures under Encana Corp's new CEO are beginning to pay off, with the company reporting third-quarter profits Wednesday that beat analyst estimates.
But investors will have to wait a little longer to learn the details of Encana's long-term strategy under Doug Suttles' leadership, including the fate of the company's 20-cent quarterly dividend.
The natural gas giant said Wednesday that capital spending for 2013 is expected to come in at between $2.7 billion and $2.9 billion, compared with the $3 billion to $3.2 billion previously expected.
Chief financial officer Sherri Brillon attributed the decrease to a combination of improved efficiency and greater scrutiny on which projects deserve the most capital.
Encana said earlier this year it was is aiming at between $100 million and $150 million in cost savings and efficiency gains over the next 18 months. On Wednesday, it said it was well on its way to achieving that goal, with $110 million of that amount expected to be realized by the end of 2013.
Its quarterly operating earnings came in at $150 million, or 20 cents per share, besting the 17 cents per share analysts polled by Thomson Reuters had on average been expecting. It was its second profitable quarter in a row.
During the same quarter a year earlier, operating earnings were $263 million, or 36 cents per share.
Shuttles, a former BP executive, became chief executive in June, replacing Randy Eresman, who had abruptly parted ways with the company at the beginning of the year.
Suttles has since pared down Encana's management ranks, doing away with separate Canadian and U.S. divisions and appointing a chief operating officer with company-wide responsibilities.
Suttles has also signalled Encana will become smaller and more focused, suggesting that more sales of dry gas natural gas assets are in the works.
Encana plans to announce its long-term strategic plan and fourth-quarter dividend — which some have speculated could be cut — before year-end.
In an interview, Suttles said a dividend is an important part of Encana's total shareholder return, but it needs to be kept at a "sustainable level."
The CEO said he's discussed the dividend with several major investors and analysts, but the feedback has been far from unanimous.
"I have groups everywhere telling me they don't understand why we pay one at all and they don't care that we do and I have others that think we shouldn't touch it," he said.
"So I think the challenge there is different people own us for different reasons and I think as we get very, very clear on our strategy going forward, I will make sure that there's real alignment there."
Any potential workforce reductions — in addition to the already announced cuts at the management level — will be considered as Encana weighs its long-term strategy.
The simpler organizational structure, unveiled earlier this month, has meant less duplication of certain tasks, like human resources and IT. In addition to the cost-saving benefits, it also means decisions can be made more quickly, Suttles said.
He said morale is "mixed" at the company, which has long struggled to cope with low natural gas prices and has seen a number of strategic shifts over the past several years with varying levels of success.
"On one side, I think there seems to be a building confidence that we will get back on track, we'll get back to winning as we like to describe it," he said, while acknowledging that change can be difficult for some.
"Of course they also wonder, 'well, what does that mean for me and my individual situation?' And we're working very hard to try to get that resolved as quickly as we can."
Suttles said there's been a shift in Encana's corporate culture since his arrival, with the phrase "Team Encana" becoming part of its vernacular.
"We all know where we're trying to get to and we're all pulling together to get there," said the third-generation Texas oilman.
Encana is tilting its focus away from dry natural gas, for which prices have been depressed for some time, and towards more lucrative natural gas liquids and oil projects.
The company is on track to achieve total liquids production of between 50,000 and 60,000 barrels per day for 2013 — a big increase from 31,000 barrels last year.
It expects to finish 2013 producing between 70,000 and 75,000 barrels per day.
Natural gas production is expected to be between 2.7 billion to 2.8 billion cubic feet per day this year, a bit lower than its previous target of between 2.8 billion and three billion cubic feet per day. Brillon said the reduction was due to delays in starting up the Deep Panuke offshore project in Nova Scotia and sales of natural gas assets in northeastern British Columbia earlier this year.