Encana Logs Net Loss, Canada

In the first quarter of 2013 Encana achieved significant milestones in a number of its oil and liquids-rich natural gas plays including strong well results from the Duvernay and Peace River Arch plays and confirmation of the commerciality of its San Juan play. Solid operational performance resulted in a 48 percent increase in oil and natural gas liquids (NGL) volumes with average production rising to 43,500 barrels per day (bbls/d) in the first quarter of 2013 compared to 29,300 bbls/d in the first quarter of last year. Encana’s average natural gas production volumes for the first quarter were 2,877 million cubic feet per day (MMcf/d).

“We are pleased with the progress made to date in a number of our emerging plays and the growth in our overall liquids production,” says Clayton Woitas, Interim President & CEO. “Proving the commercial success of emerging plays is one of our main goals this year and we intend to do so while preserving the financial strength and flexibility of the company.”

Encana generated $579 million in cash flow, or $0.79 per share, in the first quarter of 2013 and operating earnings were $179 million or $0.24 per share. The company reported a first quarter net loss of $431 million largely due to mark-to-market accounting of the company’s unrealized risk management position and a non-operating foreign exchange loss. Encana finished the quarter with approximately $2.9 billion in cash and cash equivalents and expects to finish the year with approximately $1.5 billion to $2.0 billion of cash and cash equivalents.

“Our focus remains on reducing costs and increasing our profitability,” says Woitas. “Through the first quarter we identified several areas where we can become more efficient in our business. We expect the cost reduction efforts we’ve made at the beginning of this year to have an impact on our financial results during the second half of the year.”

Search for Next President & CEO Progressing

The selection committee in search of Encana’s next President & CEO, made up of Board Chairman David O’Brien, Clayton Woitas and Suzanne Nimocks, Chair of the Human Resources and Compensation Committee, has created a short list of external and internal candidates and interviews for the position have commenced. The committee plans to complete its search by the end of June. The Board has endorsed a plan for Mr. O’Brien to continue in his current role and step down as Chairman after a new President & CEO is firmly in place. At that time, Clayton Woitas will move into the Chairman’s role.

Striving to be the Most Efficient Developer of Natural Gas

“During my time as Interim President & CEO, I have had the opportunity to see firsthand the ingenuity of the people at Encana and their commitment to making this company the most efficient producer of natural gas in North America,” adds Woitas. “I have a stronger appreciation for the suite of world-class assets Encana holds and I’m optimistic about the future of this company.”

“While we are adding diversity to our commodity and cash flow mix, Encana’s primary business is natural gas and we will succeed over the long term by striving to improve capital efficiency and lower costs across our portfolio of assets,” says Woitas.

Update on Operations

During the quarter Encana continued to focus development on its oil and liquids-rich natural gas plays. The company expects that total liquids production will increase from an exit rate of about 37,000 bbls/d at the end of 2012 to between 70,000 bbls/d and 75,000 bbls/d by the end of 2013 with the growth driven from well-established commercial plays such as the Peace River Arch, Jonah, Piceance, DJ Basin and Bighorn. The projected growth only includes minimal volumes from the portfolio of emerging plays.

“Until our emerging plays are proven to be commercial, we are taking a conservative approach to forecasting volume growth,” says Woitas. “That being said, we have taken some positive strides in the development of our emerging plays this quarter.”

Operational highlights in the quarter:

• Encana started production from the strongest industry well to date in the liquids-rich Duvernay play with a restricted 30-day initial production rate of 1,400 bbls/d and 4.0 MMcf/d of natural gas. The company is in the early stages of its Duvernay development with its joint venture partner, a subsidiary of PetroChina Company Limited. Initial test results have exceeded the company’s expectations and a multi-year development plan is in place that has the potential to significantly lower drilling and completion costs. Field condensate yield results are within a range of 45 to 350 barrels per million cubic feet (bbls/MMcf) of natural gas production.
• In the Peace River Arch play, Encana completed a six-well pad at Gordondale producing oil at a rate of 7,000 bbls/d during initial testing. Also in the Peace River Arch, a three-well pad was tested in the Pipestone area that flowed at a rate of about 1,000 bbls/d of field condensate during initial testing.
• In the Clearwater area, Encana drilled 26 net oil wells in the first quarter. Total liquids production from the area is expected to average about 8,700 bbls/d in 2013.
• Encana has determined that its core acreage in the San Juan Basin has reached commerciality with 2013 production expected to reach over 1,700 barrels of oil equivalent per day (boe/d) in the play. The company is in the process of adding to its current 166,000 net acres. The last five wells the company completed have initial 30-day production rates ranging from 150 boe/d to 700 boe/d with 80 percent oil and current well costs average approximately $5.0 million to $6.0 million per well. Encana is running two rigs in the play and may add an additional rig by year-end.
• In April, the State of Mississippi approved a severance tax reduction that reduces the tax rate from 6.0 percent to 1.3 percent on new horizontal wells commencing production on or after July 1, 2013 for the first 30 months of production of a well. This five-year program supports the pursuit of commerciality by positively impacting Encana’s economics for the emerging Tuscaloosa Marine Shale (TMS) play. With six wells producing in the TMS and two additional wells expected to begin production in the second quarter of 2013, the company is gaining confidence in the potential of the play as it nears commerciality.
• With initial results of the 2013 Niobrara Horizontal program in the DJ Basin, Encana is expecting to grow oil production in the area from 3,800 bbls/d to approximately 6,100 bbls/d by the end of 2013. Total liquids production from the play is expected to average about 8,200 bbls/d for the year.

[mappress]
LNG World News Staff, April 23, 2013; Image: Encana