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Encana's Q1 2018 Production Fall; Activity Ramp Up

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   |    Wednesday,May 02,2018

[Summary: Encana reported its Q1 2018 results.  Here is a quick read on the production numbers and operational updates.

Production

Total Equivalent production was down -3% from 335.2 Mboe/d in Q4 2017 to 324 Mboe/d in Q1 2018.

Liquids Production is down -5% from 152.8 in Q4 2017 (sequentially) to 145.2 in Q1 2018.

Natural Gas production was also down -2% from 1096 MMcf/d in Q4 2017 to 1075 in Q1 2018.

The company is forecasting that its Q4 2018 production from "core assets", Eagle ford, Permian, Duvernay and Montney will produce between 400 - 425 Mboe/d.   The company has decided to ramp up Eagle Ford drilling by increasing its rig count to 3 and restart the Duvernay drilling program.

Drilling Activity

 

Capital Expenditure

 

Operational Highlights

Eagle Ford and Duvernay: Ramping Up Ops

  • delivered total combined first quarter production of 58,400 BOE/d down -16.1% from 4Q17.
  • restarted the Duvernay drilling program and ramped up the Eagle Ford program from one to three rigs; both assets expected to return to growth in the third quarter
  • two Austin Chalk wells in the Eagle Ford delivered average IP30 of 1,925 BOE/d of which 70 percent was oil

Permian: Oil Growth

  • first quarter oil production of 54,200 bbls/d and total production of 83,800 BOE/d; on track to deliver approximately 30 percent annual growth
  • a 10-well Martin county cube delivered average IP90 of 1,300 BOE/d including 1,000 bbls/d of oil
  • the latest Midland eight well cube delivered average IP30 of 1,500 BOE/d including 1,150 bbls/d of oil

Montney: Looks to Double Liquids Production

  • first quarter production of 165,300 BOE/d including 30,400 bbls/d of liquids production; on track to deliver 55,000 to 65,000 bbls/d total liquids production in the fourth quarter
  • five cubes completed in the quarter, each with six to 14 wells, delivered average IP30 of 300 bbls/d of condensate]

 

 

 

 

 

 

ORIGINAL RELEASE:

Encana's first quarter financial and operating performance has the company firmly on track to deliver more than 30 percent annual production growth within expected cash flow. Increased year-over-year liquids production, continued cost efficiencies and strong realized pricing resulting from the company's market diversification strategy contributed to significant non-GAAP cash flow growth and margin expansion. Consistent with its 2018 plan, the company is positioned to deliver substantial liquids growth in the second half of 2018. Highlights in the quarter include:

  • net earnings of $151 million; non-GAAP operating earnings of $156 million, up from $104 million in the first quarter of 2017
  • cash from operating activities of $381 million, up from $106 million in the first quarter of 2017
  • non-GAAP cash flow of $400 million, up 44 percent from $278 million in the first quarter of 2017
  • non-GAAP cash flow margin of $13.70 per barrel of oil equivalent (BOE), up 41 percent year-over-year
  • total liquids production of 145,200 barrels per day (bbls/d), up 31 percent from first quarter 2017
  • first quarter Permian production of 83,800 barrels of oil equivalent per day (BOE/d), up 49 percent year-over-year
  • highly successful market diversification strategy delivered strong realized pricing
  • demonstrated commitment to shareholder returns and confidence in five-year plan by purchasing 10 million common shares for $111 million as part of its $400 million normal course issuer bid

"The first quarter marked a solid start to the year and reinforces our confidence in our plan to deliver more than 30 percent growth within corporate cash flow," said Doug Suttles, Encana President & CEO. "Our focus on value creation and returns is deeply embedded across the company. Our market diversification strategy delivered strong realized pricing and our ability to drive efficiency improvements ensures that commodity price increases can flow to the bottom line."

"We continue to optimize our cube development model, further maximizing the value of our land base and driving even greater efficiency into our operations," added Suttles. "Consistent with our plan, we expect significant high-margin oil and condensate growth in the second half of 2018."

Solid first quarter performance, year-over-year growth and quality returns
Encana delivered solid financial performance and year-over-year growth through the first quarter. The company generated cash from operating activities of $381 million compared to $106 million in the first quarter of 2017, as well as first quarter net earnings of $151 million. Non-GAAP cash flow increased 44 percent to $400 million compared to the first quarter of 2017 and year-over-year non-GAAP operating earnings were up 50 percent to $156 million.

Encana's capital discipline, focus on its premium inventory, efficiency gains and market diversification strategy contributed to a first quarter non-GAAP cash flow margin of $13.70 per BOE, up 41 percent from $9.72 per BOE in the first quarter of 2017. Encana expects to deliver a full-year average non-GAAP cash flow margin of approximately $14.00 per BOE.

Encana's first quarter production totaled 324,400 BOE/d of which the company's core assets contributed 307,500 BOE/d. Total liquids production grew by 31 percent to 145,200 bbls/d compared to the first quarter of 2017, with oil and condensate making up nearly 80 percent. Natural gas production was 1,075 million cubic feet per day (MMcf/d).

The company is on track to increase total production by more than 30 percent in 2018 compared to 2017, adjusted for 2017 dispositions. Encana expects its core assets will deliver fourth quarter production between 400,000 BOE/d and 425,000 BOE/d. The company's $1.8 billion to $1.9 billion 2018 capital program is being fully funded by expected cash flow.

Optimizing cube development growing the value of Encana's premium well inventory
Encana's cube development, which simultaneously targets multiple stacked pay zones, continues to optimize resource recovery and lower development costs and operating expenses. This development model combined with advanced high-intensity completions delivered outstanding first quarter well performance in the Permian and Montney. Through innovation, efficiency and active supply chain management, Encana continues to offset the impact of cost inflation. Operational highlights from the quarter include:

Permian: strong execution delivers impressive oil growth

  • first quarter oil production of 54,200 bbls/d and total production of 83,800 BOE/d; on track to deliver approximately 30 percent annual growth
  • a 10-well Martin county cube delivered average 90-day initial production rates of 1,300 BOE/d including 1,000 bbls/d of oil
  • the latest Midland eight well cube delivered average 30-day initial production rates of 1,500 BOE/d including 1,150 bbls/d of oil
  • proactive supply chain management, self-sourced materials and efficiency gains are offsetting inflation

Montney: on track to double liquids production for second consecutive year

  • first quarter production of 165,300 BOE/d including 30,400 bbls/d of liquids production; on track to deliver 55,000 to 65,000 bbls/d total liquids production in the fourth quarter
  • five cubes completed in the quarter, each with six to 14 wells, delivered average 30-day initial production rates of approximately 300 bbls/d of condensate
  • the Tower, Saturn and Sunrise plants delivered average run-times of more than 98 percent in the first quarter
  • completed an innovative midstream agreement that strongly supports the company's condensate-focused growth plan with increased processing capacity in the liquids-rich Pipestone area

Eagle Ford and Duvernay: quality assets generating free cash flow

  • delivered total combined first quarter production of 58,400 BOE/d
  • restarted the Duvernay drilling program and ramped up the Eagle Ford program from one to three rigs; both assets expected to return to growth in the third quarter
  • two Austin Chalk wells in the Eagle Ford delivered average 30-day initial production rates of 1,925 BOE/d of which 70 percent was oil
  • consistent with plan, 2018 production for both assets is expected to be similar to 2017

Encana's five-year plan is built around its premium inventory of high-margin well locations. The company expects to develop only a fraction of this inventory throughout its five-year plan.

Committed to quality shareholder returns and balance sheet strength
Encana demonstrated its commitment to shareholder returns and confidence in its five-year plan by announcing a $400 million share repurchase program to be funded with cash on hand. During the first quarter, through its normal course issuer bid, Encana purchased and cancelled 10 million common shares for total consideration of $111 million.

During the quarter, the company extended the maturity of its credit facilities to July 2022 and amended the total capacity to $4.0 billion. Encana ended the first quarter with cash and cash equivalents of $433 million and available credit facilities of $4.0 billion.

Market diversification and risk management drives quality returns
Encana's risk management strategy reflects its commitment to maximizing cash flows and delivering leading returns through the commodity cycle.

The company actively manages regional price risk and has limited its exposure to AECO natural gas and Midland oil pricing. Encana has secured significant market and price diversification through a combination of pipeline transportation and term financial basis hedging, resulting in strong realized pricing.

The company's market diversification strategy for its western Canadian natural gas production contributed a $1.00 per BOE uplift to Encana's non-GAAP cash flow margin in the first quarter. In addition, Encana has virtually no exposure to expected Midland oil pricing through 2018 and limited exposure to the end of 2019. Over this period, the company expects to realize oil pricing approximately equivalent to WTI.

As at March 31, 2018, Encana has hedged approximately 120,000 bbls/d of expected oil and condensate production and 1,026 MMcf/d of expected natural gas production for the remainder of 2018 using a variety of structures at an average price of $55.52 per barrel and $3.02 per thousand cubic feet (Mcf), respectively.

Dividend declared
On April 30, 2018, the Board declared a dividend of $0.015 per share payable on June 29, 2018 to common shareholders of record as of June 15, 2018.

First Quarter Highlights

Non-GAAP Cash Flow Reconciliation
(for the period ended March 31)
($ millions, except per share amounts)
Q1 2018 Q1 2017
     
Cash from (used in) operating activities 381 106
Deduct (add back):    
Net change in other assets and liabilities (11) (12)
Net change in non-cash working capital (8) (160)
Current tax on sale of assets - -
Non-GAAP cash flow1 400 278
Non-GAAP Operating Earnings Reconciliation
Net earnings (loss) 151 431
Before-tax (addition) deduction:    
Unrealized gain (loss) on risk management 68 362
Non-operating foreign exchange gain (loss) (100) 34
Gain (loss) on divestitures 3 (1)

Income tax
(29)
24
395
(68)
After-tax (addition) deduction (5) 327
Non-GAAP operating earnings 1 156 104

1 Non-GAAP cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1.

Production summary
(for the period ended March 31)
(average)
Q1
2018
Q1
2017


%
Oil (Mbbls/d) 83.0 67.4 23  
NGLs Plant Condensate (Mbbls/d) 30.2 20.5 47  
NGLs Other (Mbbls/d) 32.0 23.0 39  
Oil and NGLs Total (Mbbls/d) 145.2 110.9 31  
Natural gas (MMcf/d) 1,075 1,241 (13)  
Total production (MBOE/d) 324.4 317.9 2  

 

Liquids and natural gas prices
  Q1 2018 Q1 2017
Liquids ($/bbl)    
WTI 62.87 51.91
Encana realized liquids prices1    
Oil 55.74 49.66
NGLs Plant Condensate 52.49 48.74
NGLs Other 23.64 20.66
     
Natural gas    
NYMEX ($/MMBtu) 3.00 3.32
Encana realized natural gas price1 ($/Mcf) 2.94 2.50

1 Prices include the impact of realized gain (loss) on risk management.


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