EnCana Corporation (ECA) – a major Canadian oil and gas exploration and production (E&P) company – reported weak third quarter results, hit by lower prices and volumes. Operating earnings per share, excluding hedging and foreign exchange effects, came in at $1.03. This fell short of the Zacks Consensus Estimate of $1.11 and way behind the year-ago profit of $1.92.

Revenues were down 64.2% year over year to $3.9 billion. During the quarter, total production was down 7.0% to 4,387 million cubic feet equivalent per day (MMcfe/d), of which 81% was natural gas. Natural gas production decreased roughly 9.3% year-over-year to 3,551 million cubic feet per day (MMcf/d), while oil and natural gas liquids (NGLs) production was up 3.7% to 139 thousand barrels per day (MBbls/d).

Key Resource Plays

Production of natural gas from key resource plays was down approximately 6.5% year-over-year to 3,410 MMcfe/d, primarily due to a 9.8% fall in natural gas production (from 3,244 MMcf/d in the third quarter of 2008 to 2,927 MMcf/d). Gas volumes suffered from the decision to shut in some wells, restrict productive capacity and delay some well completions or tie-ins to sales pipelines because of lower natural gas prices.

However, oil production increased 20.9% to 81 MBbls/d, driven by a significant gain (approximately 44.4%) in Foster Creek. EnCana continues to see improved operational performance and strong initial production rates from its Haynesville shale gas play and Horn River basin. Year-to-date, the company has drilled 37 and 47 wells, respectively, in these two plays.

Integrated Business

The company’s integrated oil business generated impressive operating cash flows of $266 million, as production at Foster Creek and Christina Lake was up 40.6% to 45 MBbls/d. Despite this, upstream operating cash flow was down 1.6% to $180 million on the back of lower commodity prices. Realized natural gas prices during the quarter were down approximately 7.9% year-over-year to $7.31 per Mcf, while realized liquids prices were down 36.9% from the year-ago level to $57.39 per barrel.

Cash Flows & Drilling Statistics

EnCana generated cash flows from operations of $2.1 billion or $2.77 per share. EnCana drilled 292 net wells during the quarter, compared to 730 wells in the prior-year period.

Capital Spending & Balance Sheet

The company’s capital investments during the quarter were $1.3 billion (excluding acquisitions and divestitures). At the end of the quarter, EnCana had cash on hand of $1.4 billion and long-term debt of $8.2 billion, representing a debt-to-capitalization ratio of 24.7%.

Guidance

The company said that it expects full-year 2009 production to be approximately 4,465 MMcfe/d, while capital spending is likely to be $5.8 billion.

Zacks Investment Research

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