Positive cash flow from operations
Previously in this series, we learned that Encana (ECA) reported a $1.7 billion net loss in 1Q15 as opposed to $116 million in net income in the same quarter a year ago. However, its operating cash flow was better than its net income suggests.
Encana’s (ECA) 1Q15 cash flow from operations—or net income adjusted with non-cash items such as depreciation, depletion, and amortization, impairments, deferred income tax, gain and loss on risk management, and other items—was $482 million, or 49% less than the $943 million it recorded in 1Q14.
In 1Q15, operating cash flow from the sale of liquids in the US increased by 51% over 1Q14. However, cash flow from oil and gas sales in Canada, and natural gas sales in the US, decreased substantially during the period, as the graph above shows.
What helped Encana’s operating income in 1Q15?
Encana has increased productivity and cost efficiency through simultaneous drilling and completion operations on multi-well pads in its resource plays. In 1Q15, the company realized ~$700,000 per well in cost savings compared to 4Q14 well costs.
In the Eagle Ford, the company reduced normalized drilling costs by 15% over 4Q14. In the Duvernay, Encana reduced completion costs by ~25% and drilling costs by ~45%. In the Montney, Encana realized a $1 million reduction in drilling and completion costs over the same period.
WPX Energy accounts for 1.6% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Impairment charges deflate net earnings
In 1Q15, Encana recorded $1.22 billion in pretax property impairment charges. These impairment charges reflect the effect of lower commodity prices in the US, which have reduced proven reserve volume and value.