Canada: Encana Generates Q1 Cash Flow of USD 955 Million

Encana Corporation delivered solid cash flow and grew natural gas production by 4 percent per share in the first quarter of 2011. Cash flow was US$955 million, or $1.29 per share – down 17 percent largely due to lower natural gas prices compared to the first quarter of 2010.

As a result of commodity price hedging in the first quarter, Encana’s cash flow was $138 million, after tax, or 19 cents per share, higher than what the company would have generated without its commodity price hedging program. First quarter total production was approximately 3.34 billion cubic feet equivalent per day (Bcfe/d), up about 70 million cubic feet equivalent per day (MMcfe/d), or about 4 percent per share, from the same quarter in 2010.

“Encana continued to generate solid cash flow and strong operating performance in the first quarter of 2011. With production averaging about 3.34 Bcfe/d, we are on track to meet our guidance of between 3.475 Bcfe/d and 3.525 Bcfe/d for 2011. Cash flow of $955 million, while down 19 percent from the first quarter of 2010 when natural gas prices were higher, is on target. Our cash flow generation continues to benefit from Encana’s strong price hedging and steady production growth,” said Randy Eresman (image), President & Chief Executive Officer. “Our focus remains firmly on being among the lowest-cost producers in the natural gas industry by keeping capital discipline, risk management and increased operational efficiencies central to our financial and operational decision making. Encana’s financial position is healthy; our balance sheet remains robust and we plan to continue our risk management program to help reduce the risk in our cash flow projection.

“Our strategy is focused on high-growth, low-cost, margin maximization, and it’s working well. This year our supply cost, which represents the NYMEX natural gas price that delivers a return equal to our cost of capital, is expected to average $3.70 per thousand cubic feet equivalent (Mcfe) – down 25 percent in the past three years. We expect this downward cost trend to continue as we target an average supply cost of about $3 per Mcfe for development of all our key resource plays. We expect to achieve this through further efficiency gains as we advance the design and development of our resource play hubs and continuously high-grade our portfolio. While we have the resources and the drilling inventory to accelerate our development pace, we will not grow at any cost. Our 2011 growth rate is aligned with our projected cash flow generation capacity during this period when natural gas prices remain at levels that we believe are unsustainably low. We are also attracting third-party investment to help unlock value from our large inventory of undeveloped reserves and resources. All the while, we remain focused on capital discipline as we invest in short- and long-term growth opportunities in pursuit of sustainable, long-term increases in the net asset value of every Encana share,” Eresman said.

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Source: Encana, April 20, 2011;