CALGARY, Alberta Encana Corp (ECA.TO) shares fell on Thursday after saying it will spend more than it generates in cash flow for the next year and a half as the company, weighed down by depressed natural gas markets, accelerates a transition to oil just as its price is falling too.
Encana, which has rushed to shift its focus away from extensive North American unconventional dry gas operations, said spending could hit $5 billion next year, up 42 percent from this year's budget, while cash flow is forecast at $2.5 billion to $3.5 billion.
The company said it could make up the difference from asset sales and its extensive search for partners to help speed up such oil and liquids developments like the Duvernay in Alberta, Tuscaloosa Marine Shale in Louisiana and Mississippi, Collingwood in Michigan and Eaglebine in Texas.
Late Wednesday, it said will boost spending this year by $600 million to kickstart efforts to more than double liquids production to as much as 70,000 barrels a day in 2013.
"To transition our portfolio at a meaningful pace in the current natural gas price environment, it's clear that we'll need to invest more than our cash flow for at least the next 18 months," CEO Randy Eresman said at a company-sponsored investor meeting in New York on Thursday.
Some of Encana's rivals have started to claw back budgets as gas prices hover near 10-year lows and oil extends a 15 percent decline in the past month to below $80 a barrel.
Encana sank C$1.57, or 7 percent, to C$20.56 on the Toronto Stock Exchange. The shares had already lost about a quarter of their value in the last year.
"There was expectation that if they increased their oil production, which they did, that there would be an increase in cash flow this year, but there wasn't," Canaccord Genuity analyst Phil Skolnick said.
Encana expects cash flow of $3.5 billion in 2012, down from $4.2 billion in 2011. By 2013 it sees oil and gas liquids production increasing by 65 percent from 2011, partly by more than doubling the number of wells it expects to drill this year in liquids-rich plays to 115.
The company has made several changes to its strategy in recent years to cope with gas prices that have fallen in the United States and Canada under the weight of fast-growing production and high inventories.
Eresman told investors that Encana's package of interests for sale in such projects in Canada and the United States has generated "considerable interest", but the company did not announce a partner.
It is also preparing dry gas asset joint-venture opportunities aimed at taking advantage of planned liquefied natural gas projects on Canada's West Coast and the U.S. Gulf region.
Encana is a partner in an Apache Corp-led (APA.N) LNG proposal at Kitimat, British Columbia. Apache said last week it has delayed the expected startup by a year to 2017 as it seeks long-term contracts for the fuel.
Encana has already signed joint venture deals for Canadian gas plays with such companies as Toyota Tsusho Corp (8015.T), Mitsubishi Corp (8058.T) and KOGAS (036460.KS).
Meanwhile, dry gas output at the Haynesville shale gas play in Louisiana, Greater Sierra project in British Columbia and coalbed methane fields in Alberta will decline in the next few years as it cuts off spending there, Eresman said.
Some of that will be offset by the start-up later this year of the Deep Panuke gas project off Nova Scotia.
Executives said they were optimistic that North American gas prices could start to recover this year, allowing the restart of 250 million cubic feet a day of shut-in supply in 2013.
(Editing by Gerald E. McCormick and Chizu Nomiyama)