CALGARY C United states energy producers are ready for any global cost-cutting battle, the top of Encana Corp. said Wednesday, even as his company posted a US$612 million reduction in the fourth quarter.
“The world taking on The united states have to be ready because this part of the world understands how to get efficient, and you are seeing it everyday,” Encana president and CEO Doug Suttles said throughout his company’s quarterly earnings call.
Suttles didn’t specifically mention OPEC, but indicated that companies for example Encana were cutting costs to contend with foreign oil producing countries.
On Tuesday, Saudi Arabian oil minister Ali Al-Naimi told United states oil producers in a global energy conference in Houston to lower their costs or “get out.”
“It sounds harsh, and unfortunately it is, but it’s the best method to rebalance the markets. Cutting low-cost production to subsidize more expensive supplies only delays an inevitable reckoning,” Al-Naimi said, while denying Saudi Arabia is attempting to take part in a cost war with shale oil producers.
Calgary-based Encana, which produces oil and gas from shale plays in Texas, Alberta and British Columbia, confirmed that production from its main gas and oil plays is placed to say no by about 10 % this season, as it reduces its drilling and spending plans.
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Suttles said the organization was cutting costs to be able to compete inside a “lower for longer oil price environment.” Its northern border American benchmark West Texas Intermediate for April delivery rose US28 cents, or 0.9 per cent, to settle at US$32.15 a barrel around the New York Mercantile Exchange.
Encana posted a US$612 million net loss in the fourth quarter, compared with earnings of US$198 million within the same quarter last year. Much of that loss was in the company’s US$514 million in impairment charges within the fourth quarter.
Among its cost-cutting measures, Encana announced it had been reducing another 20 per cent of its staff, while also asking employees to consider sabbaticals or contract positions or asking them to leave office jobs for field-based positions. It didn’t say the number of jobs which was.
The job reductions, not only at Encana, but across the industry are as severe as I have seen in over 33 years.
When the newly announced layoffs are included, Encana has cut more than half of their staff since 2013 C roughly 2,300 people according to its headcount at the beginning of that year.
“It’s a tough time to be someone who works within the gas and oil industry. The job reductions, not just at Encana but across the industry, are as severe when i have seen in over 33 years,” Suttles said.
Despite all of the cuts, analysts continue to be worried about the company’s capability to cover its expenses.
“They’ve definitely been able to grind down costs quite aggressively. I would say that the likes of Encana and Cenovus had more to chop than others, therefore the magnitude of their cuts are probably bigger than others,” National Bank Financial analyst Kyle Preston said.
“Their cash flow is going to be, on our numbers, somewhere between US$700 and US$800 million but their expenses are going to be US$950 million on capital expenditures, so there’s still a cash shortfall there,” Preston said.
Morningstar analyst David Meats said Encana’s cost cutting measures happen to be more productive than many analysts were expecting: The organization reduced its capital and operating expenses by US$400 million in 2015.
The company plans to cut one more US$200 million to US$250 million in costs during the period of 2016.
It is also reduced its planned spending in the year by roughly US$700 million. The company had initially planned to invest between US$1.5 billion and US$1.7 billion in 2016 but announced Wednesday it would spend between US$900 million and US$1 billion.
gmorgan@nationalpost.com
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