Canada: Encana Generates 2010 Cash Flow of US$4.4 Billion

Encana Corporation achieved strong 2010 operating and financial performance despite another year of low benchmark NYMEX natural gas prices, which averaged about US$4.40 per thousand cubic feet (Mcf) for the year. Encana generated cash flow of $4.4 billion, or $6.00 per share, supported by solid production growth and commodity price hedges which resulted in realized hedging gains for 2010 of $808 million after tax.

Total 2010 production was 3.3 billion cubic feet equivalent per day (Bcfe/d), an increase of 12 per cent per share, on a pro forma basis. Operating earnings for 2010 were $665 million, or 90 cents per share. For the fourth quarter, cash flow was $917 million, or $1.25 per share, operating earnings were $68 million, or 9 cents per share, and production averaged approximately 3.4 Bcfe/d.

Proved reserves additions replaced more than 250 percent of 2010 production

In 2010, Encana added close to 3.1 trillion cubic feet of natural gas equivalent (Tcfe) of proved reserves replacing more than 250 percent of its 2010 production, using forecast prices and costs, after royalties. Total proved reserves increased 12 percent to 14.3 Tcfe.

Strong performance in a year of challenging prices

“Our teams achieved superior performance by efficiently delivering double-digit production and significant reserves growth. We reduced our operating costs and met our cash flow targets. We achieved solid operating and financial results in a challenging operating environment which saw prices hovering at what we believe to be unsustainably low levels. Our 2010 results illustrate our continued focus on risk management, capital discipline and a relentless pursuit of lowering cost structures and maximizing margins,” said Randy Eresman, Encana’s President & Chief Executive Officer.

“In 2010, we made significant strides in defining our company’s resource potential, capturing new play opportunities and high-grading the reserves and resources in our existing portfolio. Many of these new opportunities are in liquids-rich and oil plays. Our extensive portfolio of reserves and economic contingent resources serve as the foundation for our strategic focus on accelerating value recognition by doubling production per share over five years. We are focused on long-term value creation while responding to near-term natural gas market uncertainty through optimizing capital investment, maintaining our financial flexibility and focusing on a disciplined, manufacturing approach to building the underlying productive capacity of our reserves and resource portfolio at the lowest possible cost. In 2011, much of our delineation drilling activity will occur in liquids-rich plays where we have established land positions,” Eresman said.

“Although our 2010 investments achieved a very competitive supply cost of about $4 per Mcf, all of our teams are now focused on a goal to lower this supply cost to about $3 per Mcf based on 2010 cost structures, over the next three to five years. We define supply cost as the flat NYMEX natural gas price that yields an internal rate of return of 9 percent after tax, and does not include land costs. Beyond our initiatives to maximize margins by continually lowering our costs, we are encouraged by recent positive market signals and by actions among natural gas consumers and public policy makers who are recognizing the potential for natural gas to play an even greater role in meeting the energy needs of North America,” Eresman said.

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Source: Encana, February 10, 2011;