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Encana Pleased with Major Acquisitions, Ops in 2014

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   |    Wednesday,November 12,2014

Encana has announced third quarter 2014 operational and financial results.

Encana generated third quarter cash flow of approximately $807 million or $1.09 per share, representing a 22 percent increase year-over-year, and operating earnings of $281 million or $0.38 per share, an 87 percent increase over the same period last year. Net earnings attributable to common shareholders were $2.8 billion or $3.79 per share.

Doug Suttles, Encana President & CEO said: "Our third quarter results highlight the tremendous momentum we have built executing our strategy and we are now a full two years ahead of the targets we originally set for 2017.

"The steps we have taken to transform our portfolio and drive cost efficiencies have delivered an over 50 percent increase in upstream operating cash flow against an eight percent decline in overall production, compared to the same period in 2013. This highlights our focus on delivering value versus volumes. Consistent with the strategy we announced one year ago, we have built a balanced and resilient portfolio that comprises high-quality oil, natural gas liquids and natural gas investment opportunities."

Operational Update

Encana has achieved strong year-to-date operational performance with increased efficiencies, lower cycle times and lower drilling and completion costs achieved across the business. Overall operating costs are about 13 percent lower compared to the first nine months of 2013. Liquids growth in the DJ Basin, San Juan, the Duvernay and the Montney is expected to continue in the fourth quarter.

More in-depth updates on the company's third quarter 2014 operations are available below:

Encana Touts Duvernay Well Cost Drop; High-Intensity Montney Wells

Encana Drills 10,000-ft. Laterals in the DJ Basin; Updates San Juan Ops

Encana to Add Rig in the Eagle Ford; On Target with TMS Ops

Base assets

Various cost efficiencies coupled with production optimization projects have increased Encana's base production by 7,000 boe/d and generated approximately $65 million of operating cash flow year-to-date. Results achieved from Encana's base business so far this year have the company well positioned to exceed its targeted 10 percent reduction in the expected 2014 base decline rate.

Recent activities

• Completed the previously announced disposition of Bighorn assets in Alberta for approximately $1.7 billion after closing adjustments
• Announced $7.1 billion acquisition of Athlon Energy Inc., which will give Encana a premier oil position in the Permian Basin; closing is expected to occur on November 13, 2014
• Completed the secondary offering of 70.2 million common shares of PrairieSky Royalty Ltd. at an offering price of C$36.50 per common share for gross proceeds of approximately C$2.6 billion and a gain on divestiture of approximately $2.1 billion before tax; as of September 26, 2014, Encana no longer holds an interest in PrairieSky
• Announced an agreement to sell the majority of Encana's Clearwater assets in Alberta for approximately C$605 million; the sale is expected to close in the first quarter of 2015
• Extended a planned maintenance outage of Deep Panuke this fall, in part to assess increased water production and commission a feed gas compressor; production is expected back on stream by early December at an average of about 140 to 180 MMcf/d
• Encana updates its risk management program in the quarter

Athlon & Other Acquisitions

During the third quarter, Encana announced the transformative acquisition of Texas-based Athlon Energy Inc., which will give the company a premier oil position in the Permian Basin. When combined with other major portfolio adjustments, the transaction puts Encana on track to realizing an expected 75 percent of operating cash flow from liquids production in 2015 -- marking a significant strategic milestone two years ahead of plan.

Suttles said: "The accelerated execution of our strategy has placed us in a position of strength.

"We're building sustainable success from the inside-out with a culture built on teamwork, agility and the drive to succeed. Our team continues to take the concrete steps needed to deliver on our growth targets and drive efficiencies into everything we do."

Year-to-date the company has unlocked approximately $8 billion in value through the disposition of lower-margin natural gas assets, reinvesting proceeds into higher-margin liquids opportunities. Total netback for divested assets was approximately $20 per barrel of oil equivalent (boe) while the expected netback for assets acquired is approximately $55/boe. This more liquids-weighted commodity mix, in combination with higher realized year-to-date prices and lower operating and administrative costs, resulted in a 79 percent increase in Encana's netbacks, excluding hedges, compared to the first nine months of 2013.

Encana achieved another major milestone during the third quarter by exceeding 100,000 barrels per day (bbls/d) of total liquids production. Third quarter oil production of approximately 62,100 bbls/d was up 128 percent compared to the same period in 2013 and 82 percent over last quarter. This increase was driven in part by volumes from the recently acquired Eagle Ford position, which accounted for approximately 37,600 bbls/d of liquids production.

Natural gas liquids production during the third quarter averaged about 41,900 bbls/d, an increase of 35 percent year-over-year and 23 percent over last quarter. In addition, liquids volumes from the original five growth areas identified by Encana in last year's strategy announcement (the Montney, Duvernay, San Juan Basin, DJ Basin and Tuscaloosa Marine Shale plays) have increased 70 percent year-over-year from approximately 24,000 to 41,000 bbls/d.

Suttles said: "We've achieved significant capital and operational cost improvements in each of our growth areas, resulting in improved capital efficiency and margin growth.

"We hit the ground running with a seamless transition into the Eagle Ford, demonstrating the agility of our teams in entering new basins as well as our ability to rapidly apply our operational expertise and integrate with existing asset teams. We are very confident that we will replicate our Eagle Ford success in the Permian once we complete the transaction and are able to combine our expertise with that of the Athlon team."

Encana's disciplined approach has resulted in a $326 million reduction in the company's capital investment year-to-date and an increase in cash from operating activities of $579 million compared to the same period last year. Approximately 84 percent of year-to-date total capital investment has been focused on the company's growth assets.

Year-to-date, the company has reported cash flow of approximately $2.6 billion and $3.2 billion in net earnings attributable to common shareholders, with the latter figure reflecting the significant impact of divestiture activity through the year. Encana's year-to-date operating earnings of $967 million represent a 68 percent increase when compared to the first nine months of 2013.

Encana has updated its 2014 guidance to reflect the impact of transactions completed during the third quarter.

Hedging

At September 30, 2014, Encana has hedged approximately 2,104 MMcf/d of expected October to December 2014 natural gas production using NYMEX fixed price contracts at an average price of $4.17 per thousand cubic feet (Mcf) and approximately 825 MMcf/d of expected 2015 natural gas production at an average price of $4.37 per Mcf. In addition, Encana has hedged approximately 37.9 thousand barrels per day (Mbbls/d) of expected October to December 2014 oil production using WTI fixed price contracts at an average price of $97.93 per bbl. The company's hedging program helps sustain cash flow and netbacks during periods of lower prices.

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Production Oil(bbls/d)

 Click here for More Planned 2024 Activity