While its fourth quarter was stronger than expected, Encana will be reducing both its capital expenditures and its workforce in 2016, the company announced as it presented fourth quarter results earlier this week.
An estimated 20 percent of employees will face layoffs through the year, and the company aims to reduce its spending structure by $550 million, according to the reports.
"Each year since the launch of our strategy, we have strengthened our balance sheet, increased our financial flexibility and lowered our cost structures. We enter 2016 with tremendous liquidity, a robust hedging program and a strong balance sheet which we will continue to prudently manage and protect," said Doug Suttles, Encana President & CEO. "The combination of our high quality portfolio, additional improvements in costs and capital efficiency and significant hedge position mean we have largely offset the impacts of a smaller capital program and lower oil and gas prices. Under our new plan, we will invest virtually all of our capital in our core four assets and our cost structure will be about $550 million lower than in 2015."
Encana reported cash flow of $383 million or $0.45 per share compared to fourth quarter 2014 cash flow of $377 million or $0.51 per share. Operating earnings increased to $111 million or $0.13 per share, up from $35 million or $0.05 per share in the fourth quarter of 2014. Encana reported 2015 annual cash flow of $1.4 billion and a 2015 operating loss of $61 million. The company's 2015 net loss of $5.2 billion is largely attributable to after-tax non-cash ceiling test impairments totalling $4.1 billion and a non-operating foreign exchange loss of about $700 million.
Encana's core four assets contributed 274,400 BOE/d, or 67 percent, of total fourth quarter production of 406,800 BOE/d. Total liquids production in the quarter increased 36 percent year-over-year to 145,000 bbls/d. Full-year 2015 production averaged 405,900 BOE/d with liquids averaging 133,400 bbls/d, reflecting a 54 percent increase from 2014. Full-year natural gas production was 1,635 million cubic feet per day (MMcf/d).
Approximately 95 percent of 2016 capital will be invested in the core four assets, the Permian, Eagle Ford, Duvernay and Montney. The company will continue to optimize production from its base assets and minimize decline rates.
The company expects its cost structure in 2016 to be around $550 million lower than in 2015. Of that, between $200 million and $250 million are new and incremental savings from the company's previous 2016 guidance. This includes reductions of $75 million to $125 million in transportation and processing costs; $50 million in operating costs; $25 million in production, mineral and other taxes; and $50 million in overhead costs.
Encana's expected overhead cost savings include an approximate 20 percent workforce reduction, bringing total workforce reduction since 2013 to over 50 percent. Additional capital efficiencies are expected to contribute a further $50 million of cash flow compared to previous 2016 guidance.