Canadian energy earnings hint at brighter outlook for oil

By Nia Williams and Amrutha Gayathri

CALGARY, Alberta, July 21 (Reuters) -The Canadian oil and gas earnings season kicked off on Thursday with signs of an industry recovery as Encana Corp and Precision Drilling Corp outlined plans to boost activity.

Calgary-based Encana reported an unexpected quarterly operating profit and said it would boost 2016 capital spending by $200 million from a previously announced range of $900 million to $1 billion. It also plans to increase production by about 13,000 barrels of oil equivalent per day at its core shale operations.

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Precision Drilling, despite posting a second-quarter loss, said oil producers were increasing capital budgets due to the 70 percent rally in crude prices since February and putting more rigs back to work.

“Our customers appear to be looking beyond the oil price lows of earlier this year, resetting spending to current commodity price levels, and beginning the early stages of planning for improved longer-term fundamentals,” said Precision Drilling Chief Executive Officer Kevin Neveu.

Both companies operate in Canada and the United States, and analysts said the uptick in optimism might be mirrored by some U.S. shale companies like Pioneer Natural Resources Co.

Analysts on average expect Pioneer to post a second-quarter loss of 35 cents per share when it reports next week, according to Thomson Reuters I/B/E/S.

While Encana has benefited from a cash injection from recent asset sales, analysts said the move to boost spending indicates the best North American light oil plays, like the Permian and Eagle Ford in the United States and the Montney in western Canada, could start to attract a surge in investment.

Encana said 75 percent of the additional capital would go to its Permian shale operations.

Morningstar analyst David Meats said he expected many companies to add one or two extra rigs, plan to complete more drilled but uncompleted wells and generally be more optimistic.

“It’s a sign of the first step on a long journey back to light oil production growth,” Meats said. “Certainly it’s very likely that other producers will follow suit and allocate other capital to the Permian.”

Encana CEO Doug Suttles said the company had made its operations “massively more efficient.” Operating costs were down 32 percent from a year earlier, and Suttles said two-thirds of those savings would be sustainable even if oil prices rise.

(Editing by Lisa Von Ahn)