Encana Logs Net Loss, USA

Encana Corporation reported cash flow of $913 million and $263 million in operating earnings for the third quarter 2012. Year-to-date the company generated cash flow of approximately $2.7 billion and operating earnings of $701 million.

Oil and natural gas liquids (NGLs) production volumes in the quarter averaged over 30,000 barrels per day (bbls/d), an increase of nearly 6,000 bbls/d compared to the third quarter of 2011. The Canadian Division volumes were higher primarily due to the extraction of additional liquids volumes at the Musreau plant in Bighorn and a successful drilling program in the Peace River Arch area. The USA Division volumes were higher primarily due to drilling programs across the company’s oil and liquids-rich plays.

“The strong quarter-over-quarter growth in our oil and NGLs volumes is the result of a focused effort by our teams to accelerate the development of our oil and liquids-rich plays,” says Randy Eresman, Encana President & CEO. “We expect to see this trend continue as we progress our plans to diversify our commodity portfolio and achieve a more balanced stream of future cash flows.”

Average natural gas production volumes were 2.9 billion cubic feet per day (Bcf/d), down about 460 million cubic feet per day (MMcf/d) from the same period of 2011 primarily due to voluntary capacity reductions, divestitures and natural declines. In the Canadian Division, declines were partially offset by successful drilling programs in the Bighorn and Cutbank Ridge areas. In the USA Division, declines were partially offset by a successful drilling program in the Piceance Basin.

During the first half of this year, when natural gas prices were at their lowest in the last 10 years, Encana shut-in or curtailed approximately 500 MMcf/d of production. Beginning in August, Encana began bringing the volumes back on-line with the goal that all shut-in and curtailed volumes would be back on-stream prior to winter. With production volumes now largely restored, the company re-affirms its 2012 production guidance of 3.0 Bcf/d.

Encana recorded a $1.19 billion after-tax impairment charge against net earnings in the third quarter resulting primarily from the impact of the decline in 12-month average trailing natural gas prices. As a result, reported net earnings for the third quarter were a loss of $1.24 billion. The impairment charge is non-cash in nature, does not affect cash flow or operating earnings and it is not indicative of the fair market value of the company’s oil and gas properties or the future net cash flows expected to be generated from the properties.

To date, Encana has increased its natural gas hedge position to approximately 1.2 Bcf/d for 2013 at an average price of $4.51 per Mcf.

“Our increased risk management position helps to provide additional certainty for our cash flow generation and capital programs for 2013,” adds Eresman.

“There are a number of positive signs for Encana as we look towards 2013. In addition to growth in oil and NGLs production and the recent recovery in natural gas prices, we are optimistic as discussions progress on our joint venture and divestiture opportunities,” says Eresman. “Looking longer term, with a diversified commodity mix and our proven track record as a low cost producer, we are well positioned to achieve sustainable growth across our portfolio of assets.”

Update on Operations

In the Canadian Division, Encana had a successful quarter with the continued development of its liquids-rich assets.

Clearwater – Encana has drilled 13 oil wells through the third quarter in the area with plans in place to drill an additional 20 wells in 2012. Oil and NGLs volumes are up slightly in this area and it is expected these plays will provide a meaningful contribution to liquids growth over the next six months as the new wells are brought on production.

Duvernay – Encana has two rigs currently drilling in the area with 12 wells planned for the year. The company has rig released seven wells (two vertical and five horizontal). Condensate yields from these early wells are very promising.

Peace River Arch – Encana continues to explore this liquids-rich area with one rig currently working in the region. Encana drilled seven wells in the quarter with a total of 20 drilled to date out of a planned 27 for 2012.

In the USA Division, the company is experiencing encouraging results on its oil and liquids-rich natural gas plays.

DJ Niobrara – With plans to drill 18 wells this year, there are currently two wells on production and another nine wells either completed or waiting on completions in this area.

Eaglebine – Encana is planning to drill 12 wells in this play in 2012 and is experiencing promising early results from six operated wells on production with some of the wells exceeding expectations. There are two additional wells waiting on completions.

San Juan – Encana has drilled four wells through the third quarter, with a fifth in the process of drilling, and a total of eight wells planned for 2012.

Mississippian Lime – Encana is currently running a two rig drilling program in the play and is producing from three wells. The company has drilled seven wells to date with a total of 16 planned wells for the year.

Tuscaloosa Marine Shale – Progress is being made on delineating the asset. In this area, Encana has four new operated producing wells and two wells waiting on completions, making a total of six wells drilled out of a planned eight in the play for 2012. In addition, the company has four legacy acquired wells. There are two drilling rigs working in the play with the company’s focus being on reducing drilling costs.

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LNG World News Staff, October 24, 2012