Encana bets on gas price recovery in 2013
(Dow Jones Newswires; April 25) - Encana is making a bold bet on natural gas prices starting to recover in 2013: It isn't renewing its hedges. The company's hedging program has protected its earnings for the past few years as natural gas prices have plummeted, reaching 10-year lows recently due to a surge in production from shale gas drilling.
Leaving the safety of hedging behind is a risky step for the Calgary company: Two-thirds of Encana's 3 billion cubic feet a day of production is hedged this year at an average price of $5.80 a thousand cubic feet, or more than twice current market prices. Just one-sixth of the company's production is hedged for 2013. "We are optimistic about a potential natural gas price recovery going into 2013," Encana CEO Randy Eresman said on a conference call April 25.
Encana says it has reasons to be optimistic about natural gas. Prices have fallen so low that producers are starting to take supply off the market. Electricity utilities have also begun taking advantage of low gas prices to switch from coal. Over the past five to six months power companies that switched from coal have been burning an additional 7 billion cubic feet a day of gas, Encana said. "We see much more upside than downside in natural gas prices, so it wouldn't be a good time to hedge," the CEO said.