Encana sees possible benefit from U.S. border tax; operating profit up
FILE PHOTO: Encana offices is pictured in Parachute, Colorado, U.S. on December 10, 2014. REUTERS/Jim Urquhart/File Photo
Encana Corp (ECA.TO) will likely benefit if the United States imposes a potential border tax, Chief Executive Douglas Suttles said on Tuesday as Canada's No. 2 oil and natural gas producer reported better-than-expected operating profits for the first quarter.
A U.S. "border adjustment tax," pushed by Republicans in Congress as a way to boost domestic manufacturing, could slap a tax of up to 20 percent on imports including crude oil, affecting Canadian companies, which send most of their products southward.
But speaking to media on a conference call, Encana (ECA.N) CEO Suttles said while the details of potential changes are not known, a border tax in general would make the company's condensate output more profitable.
"Condensate is (usually) an imported product from the United States," he said. "If a border tax raised the price of oil in the United States, it will also raise the price of condensate. So even though we're producing it here in Canada, we'd still benefit."
Encana would also benefit due to its significant U.S. crude production and from the expectation that a tax will depreciate the Canadian dollar, improving the company's margins, Suttles said.
Encana on Tuesday posted a net profit of $431 million for the first quarter, compared with a loss of $379 million a year ago, helped by higher commodity prices.
Oil prices began to rise late last year after a two-year slump and have now stabilized at around $50 per barrel, as an OPEC-led production cut and rebounding demand slowly erode a global glut.
Global benchmark Brent crude prices LCOc1 jumped 55 percent in the January-March period.
Encana said it realized $43.45 per barrel of oil and natural gas liquids production in the quarter ended March 31, compared with $33.09 a year ago.
On a per-share basis, Encana reported an operating profit of 11 cents, beating analysts' average estimate of 3 cents, according to Thomson Reuters I/B/E/S.
Encana has narrowed operations to focus on four core North American plays: the Montney and Duvernay in Western Canada, and the Eagle Ford and Permian in the United States.
This narrowing meant the company's production fell 17 percent to 317,900 barrels of oil equivalent per day in the first quarter.
Encana said it expects to grow oil and condensate production by more than 35 percent between the fourth quarter of 2016 and the fourth quarter of 2017, with output from its core assets estimated to rise.
(Reporting by Ethan Lou in Calgary, Alberta, and Swetha Gopinath in Bengaluru; editing by Savio D'Souza, G Crosse)