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Globe & Mail (Canada): EnCana surpasses all Canadian profit records

$6.4-billion figure exceeds BCE’s earnings in 1999
DAVID EBNER

CALGARY — EnCana Corp. has booked the biggest annual corporate profit in Canadian history, but its chief executive officer nevertheless described 2006 as a “mixed” year for the country’s biggest oil and natural gas producer.

The Calgary-based company reported profit yesterday of $5.65-billion (U.S.), up by about two-thirds from the previous year. Converted to Canadian dollars using the average exchange rate in 2006, that would amount to $6.4-billion (Canadian), surpassing the previous record of $5.46-billion set by BCE Inc. for 1999 at the height of the technology boom.

EnCana CEO Randy Eresman said the 2006 numbers are “excellent,” but noted that problems including high costs in the field hurt the company, in part restraining production. A year ago, it had hoped to increase natural gas sales by 8 per cent in 2006 but added only 4 per cent to its total.

“Our overall results were mixed this past year,” Mr. Eresman told investors, analysts and reports during a conference call yesterday to discuss the fourth quarter ended Dec. 31.
EnCana shares fell 6 cents or 0.1 per cent yesterday to close at $57.19 on the Toronto Stock Exchange.

Low energy prices made the fourth quarter particularly difficult. EnCana was forced to sell gas for 44 per cent less than in the same quarter a year earlier. For all of 2006, the decline in selling prices was 16 per cent compared with 2005.

Other energy companies in Calgary, including Petro-Canada and Shell Canada Ltd., have also been hit by lower gas prices.

The annual profit amounted to $6.76 (US) a share, and compared with $3-billion or $3.85 in 2005.

For the fourth quarter, EnCana profit totalled $663-million or 82 cents a share, down by more than 70 per cent from $2.37-billion or a year earlier. On a operating basis, which excludes items such as a large gain on hedge contracts in late 2005, EnCana’s profit was $675-million or 84 cents, down by about half from $1.27-billion or in 2005.

On the record 2006 profit, the company noted that about two-fifths of it — $2.38-billion — reflected unrealized gains on successful hedge contracts, tax rate changes and gains from the sale of assets.

Operating profit in 2006 was $3.27-billion, EnCana said, up only 1 per cent from $3.24-billion in 2005.

EnCana is mostly a producer of natural gas, but is increasing oil sands output.
The company addressed a question on the federal government’s new-found interest in climate change and greenhouse gases now that Canadians in polls have identified the environment as the top issue facing the country.

Mr. Eresman was part of a group of executives that met a week ago with senior ministers in Prime Minister Stephen Harper’s government. Mr. Eresman said he was pleased that it appears required reductions in emissions will be counted on an “intensity” basis, meaning that total emissions could increase as emissions per barrel fall as required.

For an ambitious oil sands producer like EnCana, this is crucial because, with partner Houston-based ConocoPhillips Co., it aims to produce 400,000 barrels a day from the oil sands within a decade, up from about 60,000 last year.

Mr. Eresman said the company hopes to reduce emissions by becoming more efficient, including in its use of power. His predecessor at EnCana, Gwyn Morgan, railed in 2002 against the Kyoto Accord’s requirement to cut greenhouse gas emissions, but Mr. Eresman yesterday was much more comfortable with the changing sentiment among Canadians and government about the environment. “It’s good over all for Canada,” he said.

Mr. Eresman also said yesterday that a gas development offshore Nova Scotia is “a keeper for us.” Some industry players had expected EnCana would sell the project at some point. Regulatory hearings to assess the proposal begin soon.

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