Why Did Encana’s Free Cash Flow Fall in 4Q16?



Operating cash flow

For 4Q16, Encana (ECA) reported operating cash flow of $199 million, ~56% less than its ~$448 million in 4Q15.

As the above chart shows, Encana’s operating cash flows started to decline in 2Q14, when natural gas (UNG) prices topped. In 2015 and 2016, Encana reported lower operating cash flows compared with preceding years. In 2Q16, Encana reported the lowest-ever operating cash flow of ~$83 million since 2010.

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Free cash flow

In 4Q16, Encana spent $351 million on capital expenditure, meaning ECA’s free cash flow is negative at -$152 million or ~-$0.16 per share.

Other upstream players

Due to lower energy prices, most S&P 500 (SPY) (SPX-INDEX) energy companies have reported lower year-over-year cash flows. Southwestern Energy (SWN), EOG Resources (EOG), and Range Resources (RRC) reported $0.36 per share, $1.39 per share, and $0.18 per share, respectively, in cash flows in 3Q16.

Now it’s time to take a look at how Wall Street analysts have changed their recommendations since ECA’s 4Q16 earnings.


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