Encana’s (TSX:ECA) (NYSE:ECA) performance through the second
quarter has put the company well ahead in the first year of its
five-year plan. Driven by strong oil and condensate growth, an
increasingly liquids-weighted portfolio and lower costs, Encana
significantly expanded its non-GAAP corporate margin. Core asset
growth is ahead of schedule and the company increased its type
curves and premium return well inventory. Encana has increased
total liquids production and lowered costs in its updated 2017
corporate guidance.
Highlights from the quarter include:
- Net earnings of $331 million compared to a loss of $601 million
in the second quarter of 2016
- Cash from operating activities of $218 million and non-GAAP
cash flow of $351 million, up 26 percent from the previous
quarter
- Non-GAAP corporate margin of $12.19 per barrel of oil
equivalent (BOE), up 25 percent from the previous quarter despite
lower benchmark commodity prices
- Core asset production of 246,500 barrels of oil equivalent per
day (BOE/d), up 9,200 BOE/d from the previous quarter; Encana now
expects its core assets will deliver 25 to 30 percent production
growth from the fourth quarter of 2016 to the fourth quarter of
2017
- Liquids production of 124,900 barrels per day (bbls/d),
including oil and condensate production of 100,200 bbls/d, up 14
percent from the previous quarter
- Increased well productivity across its core assets and grew its
premium return well inventory to over 11,000 locations
- Announced sale of Piceance natural gas assets
- By year-end 2017, Encana expects its net debt to adjusted
EBITDA ratio will be approximately two times and that it will have
total liquidity of over $5 billion
“Our results highlight our resilience and
demonstrate that we can deliver quality corporate returns through
the commodity cycle,” said Doug Suttles, Encana President &
CEO. “Our transition to a balanced production mix, strong oil and
condensate growth and lower costs are driving corporate margin
expansion. For the third consecutive year, we are significantly
strengthening our balance sheet.”
“Driven by innovation and operational
excellence, we continue to expand our premium return well
inventory,” added Suttles. “Our updated guidance reflects our
strong performance, efficiency and confidence. We are generating
significant momentum and are well positioned for 2018 when we
expect to grow within cash flow, even if commodity prices remain at
today’s levels.”
Strong second quarter results:
Outperforming plan and updating 2017 guidanceEncana
generated cash from operating activities of $218 million in the
second quarter of 2017. Non-GAAP cash flow was $351 million
compared to $278 million in the previous quarter. The company
delivered second quarter net earnings of $331 million, or $0.34 per
share. Non-GAAP operating earnings were $180 million compared to
$104 million in the previous quarter.
Encana’s strong oil and condensate growth,
increasingly liquids-weighted portfolio, lower costs and robust
risk management strategy contributed to a non-GAAP corporate margin
of $12.19 per BOE in the second quarter, up 25 percent from $9.72
per BOE in the first quarter. Year-to-date, the company’s non-GAAP
corporate margin has averaged $10.96 per BOE.
The company delivered second quarter total
production of 316,000 BOE/d, including total liquids production of
124,900 bbls/d, of which 80 percent was oil and condensate.
Encana’s second quarter liquids volumes accounted for approximately
40 percent of its total production mix, up from 35 percent in the
first quarter. The company’s core assets contributed 246,500 BOE/d,
representing almost 80 percent of total production. Natural gas
production averaged 1,146 million cubic feet per day (MMcf/d).
Encana is outperforming its initial 2017
corporate guidance. Reflecting its efficiency, the company is
maintaining its original capital investment guidance range while
lowering expected costs and increasing expected production growth
from its core assets from the fourth quarter of 2016 to the fourth
quarter of 2017 to between 25 to 30 percent. Updated 2017 guidance
can be found on Encana’s website at
http://www.encana.com/investors/financial/corporate-guidance.html.
Innovation driving value: Boosting
premium type curves and growing premium inventoryEncana’s
ability to scale ideas and technology across its multi-basin
portfolio is a powerful competitive advantage. Driven by cube
development, optimized completions, improved targeting and lower
costs, Encana outperformed its average initial production 180-day
(IP180) type curves by between 20 to 45 percent. In addition, the
company has grown its premium return well inventory to over 11,000
locations including the replacement of all premium wells drilled
since October 2016.
In the Permian, Encana delivered a 20 percent
increase in IP180 type curves and increased its premium return well
inventory by 700 locations. The company has 45 cube wells on
production and aims to create additional upside through advanced
completions design and new benches.
In the Montney, Encana delivered a 25 percent
increase in IP180 type curves and increased its premium return well
inventory by 1,000 locations. The company expects to double oil and
condensate production from the fourth quarter of 2016 to the fourth
quarter of 2017 and has drilled 28 condensate-rich cube wells in
the Tower North area.
In the Eagle Ford, Encana delivered a 45 percent
increase in average IP180 type curves and grew oil and condensate
production by 30 percent from the previous quarter. The company
increased its premium return well inventory by 40 locations.
In the Duvernay, the company has replaced all of
the 30 premium return well locations it has drilled since October
2016.
Driving further cost efficiencies: More
than offsetting inflationEncana continues to successfully
manage inflation as it efficiently develops its core assets at
scale. Through sophisticated planning, supply chain management and
operating efficiencies, the company expects to hold like-for-like
drilling and completion costs essentially flat year-over-year. On a
per unit basis, combined second quarter operating costs (excluding
long-term incentives) and transportation and processing costs were
down $0.34 per BOE compared to the first quarter of 2017.
Highly resilient: Driving value through the commodity
cycle and balance sheet strengthOperational improvements
and productivity gains across the portfolio through the first half
of 2017 strengthened Encana's resiliency. The company now expects
it can deliver its five-year growth plan, announced in October
2016, in a flat $50 WTI oil price environment.
For the third consecutive year, Encana expects
to significantly strengthen its balance sheet. The sale of its
Piceance assets is expected to close in the third quarter of 2017.
Transaction proceeds plus cash flow from anticipated strong
operating performance means that by year-end 2017, Encana expects
its net debt to adjusted EBITDA ratio will be approximately two
times and that it will have total liquidity of over $5 billion.
Encana has no debt maturities until 2019 and almost 75 percent of
its long-term debt is not due until 2030 and beyond.
Commercial mindset: Managing risk and preserving
optionalityEncana's multi-basin portfolio, short-cycle
capital program and robust risk management strategy give the
company significant flexibility and position it to effectively
manage risk and protect value. Encana has protected over 75 percent
of its expected oil, condensate and natural gas production for the
remainder of 2017 and has limited its exposure to AECO natural gas
and Midland oil regional pricing through 2020 through a combination
of term financial basis hedging and physical transportation
agreements.
As at June 30, 2017, Encana had hedged
approximately 88,000 bbls/d of expected 2017 oil and condensate
production for the balance of the year using a variety of
structures at an average price of $49.73 per barrel (bbl). The
company has hedged approximately 865 MMcf/d of expected 2017
natural gas production for the balance of the year using a variety
of structures at an average price of $3.10 per thousand cubic feet
(Mcf).
For 2018, the company has hedged approximately
31,000 bbls/d of expected oil and condensate production at an
average price of $55.45 per bbl and approximately 650 MMcf/d of
expected natural gas production at an average price of $3.07 per
Mcf.
Dividend DeclaredOn July 20,
2017, the Board declared a dividend of $0.015 per share payable on
September 29, 2017 to common shareholders of record as of September
15, 2017.
Second Quarter Highlights |
Non-GAAP Cash Flow Reconciliation |
(for the period ended June 30)($ millions) |
Q2 2017 |
Q2 2016 |
|
|
|
Cash from (used in) operating activities Deduct
(add back): Net change in other assets and liabilities
Net change in non-cash working capital Current tax on
sale of assets |
218 (4) (129)
- |
83 (5) (94) - |
Non-GAAP cash flow1 |
351 |
182 |
Non-GAAP Operating Earnings
Reconciliation |
Net earnings (loss) Before-tax (addition)
deduction: Unrealized gain (loss) on risk management
Impairments Non-operating foreign exchange gain (loss)
Gain (loss) on divestitures |
331 110 -
63 - |
(601) (451) (484) (61) (2) |
Income tax |
173 (22) |
(998) 308 |
After-tax (addition) deduction |
151 |
(690) |
Non-GAAP operating earnings
1 |
180 |
89 |
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 June 30)(average) |
Q2 2017 |
Q2 2016 |
% ∆ |
|
Liquids (Mbbls/d) |
124.9 |
132.0 |
(5 |
) |
|
Natural gas (MMcf/d) |
1,146 |
1,418 |
(19 |
) |
|
Total production (MBOE/d) |
316.0 |
368.3 |
(14 |
) |
Liquids and Natural Gas Prices |
|
Q2 2017 |
Q2 2016 |
Oil and NGLs
($/bbl) |
|
|
WTI |
48.29 |
45.59 |
Encana realized liquids price1 |
41.97 |
38.47 |
Natural gas |
|
|
NYMEX ($/MMBtu) |
3.18 |
1.95 |
Encana realized gas price1
($/Mcf) |
2.56 |
1.86 |
1 Prices
include the impact of realized gains (losses) on risk
management. |
Second Quarter Conference CallA conference call
and webcast to discuss the 2017 second quarter results will be held
for the investment community today (July 21, 2017) at 7 a.m. MT (9
a.m. ET). To participate, please dial (844) 707-0663 (toll-free in
North America) or (703) 326-3003 (international) approximately 10
minutes prior to the conference call. The live audio webcast of the
second quarter conference call, including slides, will also be
available on Encana's website, www.encana.com, under
Investors/Presentations & Events. The webcasts will be archived
for approximately 90 days.
Encana CorporationEncana is a
leading North American energy producer that is focused on
developing its strong portfolio of resource plays, held directly
and indirectly through its subsidiaries, producing oil, natural gas
liquids (NGLs) and natural gas. By partnering with employees,
community organizations and other businesses, Encana contributes to
the strength and sustainability of the communities where it
operates. Encana common shares trade on the Toronto and New York
stock exchanges under the symbol ECA.
Important Information Encana
reports in U.S. dollars unless otherwise noted. Production, sales
and reserves estimates are reported on an after-royalties basis,
unless otherwise noted. The term liquids is used to represent oil,
NGLs and condensate. The term liquids rich is used to represent
natural gas streams with associated liquids volumes. Unless
otherwise specified or the context otherwise requires, reference to
Encana or to the company includes reference to subsidiaries of and
partnership interests held by Encana Corporation and its
subsidiaries.
NOTE 1: Non-GAAP measuresCertain measures in
this news release do not have any standardized meaning as
prescribed by U.S. GAAP and, therefore, are considered non-GAAP
measures. These measures may not be comparable to similar measures
presented by other companies and should not be viewed as a
substitute for measures reported under U.S. GAAP.
- Non-GAAP Cash Flow is a non-GAAP measure
defined as cash from operating activities excluding net change in
other assets and liabilities, net change in non-cash working
capital and current tax on sale of assets.
Non-GAAP Corporate Margin is a
non-GAAP measure defined as Non-GAAP Cash Flow per BOE of
production.
- Non-GAAP Operating Earnings (Loss) is a
non-GAAP measure defined as net earnings (loss) excluding
non-recurring or non-cash items that management believes reduces
the comparability of the company's financial performance between
periods. These items may include, but are not limited to,
unrealized gains/losses on risk management, impairments,
restructuring charges, non-operating foreign exchange gains/losses,
gains/losses on divestitures and gains on debt retirement. Income
taxes may include valuation allowances and the provision related to
the pre-tax items listed, as well as income taxes related to
divestitures and adjustments to normalize the effect of income
taxes calculated using the estimated annual effective income tax
rate.
- Net Debt to Adjusted EBITDA is a non-GAAP
measure monitored by management as an indicator of the company’s
overall financial strength and as a measure considered comparable
to peers in the industry. Net Debt is defined as
long-term debt, including the current portion, less cash and cash
equivalents. Adjusted EBITDA is defined as
trailing 12-month net earnings (loss) before income taxes,
DD&A, impairments, accretion of asset retirement obligation,
interest, unrealized gains/losses on risk management, foreign
exchange gains/losses, gains/losses on divestitures and other
gains/losses.
ADVISORY REGARDING OIL AND GAS
INFORMATION - The conversion of natural gas volumes to
barrels of oil equivalent (BOE) is on the basis of six thousand
cubic feet to one barrel. BOE is based on a generic energy
equivalency conversion method primarily applicable at the burner
tip and does not represent economic value equivalency at the
wellhead. Readers are cautioned that BOE may be misleading,
particularly if used in isolation. 30-day initial production and
other short-term rates are not necessarily indicative of long-term
performance or of ultimate recovery.
Drilling and completions costs in the Permian,
Eagle Ford, Duvernay and Montney have been normalized based on
lateral lengths of 7,500 feet, 5,000 feet, 8,200 feet and 9,000
feet, respectively. Disclosure of estimated well locations include
proved, probable, contingent and unbooked locations. Estimate of
well locations and premium return inventory are prepared internally
based on Encana's prospective acreage and an assumption as to the
number of wells that can be drilled per section based on industry
practice and internal review. Approximately 36 percent of all
locations specified in our core assets are booked as either
reserves or resources, as prepared by internal qualified reserves
evaluators using forecast prices and costs as of December 31, 2016.
Unbooked locations do not have attributed reserves or resources and
have been identified by management as an estimation of Encana's
multi-year drilling activities based on evaluation of applicable
geologic, seismic, engineering, production and reserves
information. There is no certainty that Encana will drill all
unbooked locations and if drilled there is no certainty that such
locations will result in additional oil and gas reserves, resources
or production. The locations on which Encana will actually drill
wells, including the number and timing thereof is ultimately
dependent upon the availability of capital, regulatory and partner
approvals, seasonal restrictions, equipment and personnel, oil and
natural gas prices, costs, actual drilling results, additional
reservoir information that is obtained, production rate recovery,
transportation constraints and other factors. While certain of the
unbooked locations have been de-risked by drilling existing wells
in relative close proximity to such locations, many other unbooked
locations are farther away from existing wells where management has
less information about the characteristics of the reservoir and
therefore there is more uncertainty whether wells will be drilled
in such locations and if drilled there is more uncertainty that
such wells will result in additional proved or probable reserves,
resources or production. Premium return well inventory are
locations with expected after tax returns greater than 35 percent
at $50/bbl WTI and $3/MMBtu NYMEX.
ADVISORY REGARDING FORWARD-LOOKING
STATEMENTS - This news release contains certain
forward-looking statements or information (collectively, “FLS”)
within the meaning of applicable securities legislation. FLS
include: advancement of and expected growth and returns in Encana’s
five-year plan, including impact of various commodity prices;
anticipated production, including growth from core assets,
composition of commodity mix, cash flow and corporate margins;
potential premium return locations, ability to develop, expected
drilling and replacement of locations; expected consideration from
transactions, use of proceeds, satisfaction of closing conditions
and timing thereof; expected net debt and debt ratios; ability to
access credit facilities and other sources of liquidity;
anticipated costs, capital and operational efficiencies, including
managing inflation; expectation of meeting or exceeding targets in
Encana’s corporate guidance; success of and benefits from technical
innovation and cube development approach, including enhancements to
well performance, type curves, number of wells and returns;
performance relative to peers; anticipated hedging and outcomes of
risk management program, including exposure to certain commodity
prices, amount of hedged production and physical sales locations;
and anticipated dividends.
Readers are cautioned against unduly relying on
FLS which, by their nature, involve numerous assumptions, risks and
uncertainties that may cause such statements not to occur, or
results to differ materially from those expressed or implied. These
assumptions include: future commodity prices and differentials;
foreign exchange rates; Encana’s ability to access its revolving
credit facilities and shelf prospectuses; assumptions contained in
Encana’s corporate guidance and in the news release; data contained
in key modeling statistics; availability of attractive hedges and
enforceability of risk management program; effectiveness of
Encana's drive to productivity and efficiencies; results from
innovations; expectation that counterparties will fulfill their
obligations under the gathering, midstream and marketing
agreements; access to transportation and processing facilities
where Encana operates; assumed tax, royalty and regulatory regimes;
enforceability of transaction agreements; ability to satisfy
closing conditions and regulatory approvals, successful closing of,
and value of post-closing and other adjustments associated with
announced sale of assets; and expectations and projections made in
light of, and generally consistent with, Encana's historical
experience and its perception of historical trends, including with
respect to the pace of technological development, the benefits
achieved and general industry expectations.
Risks and uncertainties that may affect these
business outcomes include: the ability to generate sufficient cash
flow to meet Encana's obligations; risks inherent to completing
transactions on a timely basis or at all and adjustments that may
impact expected proceeds or value to Encana; commodity price
volatility; ability to secure adequate product transportation and
potential pipeline curtailments; variability and discretion of
Encana's board of directors to declare and pay dividends, if any;
the timing and costs of well, facilities and pipeline construction;
business interruption and casualty losses or unexpected technical
difficulties; counterparty and credit risk; risk and effect of a
downgrade in credit rating and its impact on access to capital
markets and other sources of liquidity; fluctuations in currency
and interest rates; risks inherent in Encana's corporate guidance;
failure to achieve anticipated results from cost and efficiency
initiatives; risks inherent in marketing operations; risks
associated with technology; changes in or interpretation of
royalty, tax, environmental, greenhouse gas, carbon, accounting and
other laws or regulations; risks associated with existing and
potential future lawsuits and regulatory actions made against
Encana; impact to Encana as a result of disputes arising with its
partners, including the suspension by its partners of certain of
their obligations and the inability to dispose of assets or
interests in certain arrangements; Encana's ability to acquire or
find additional reserves; imprecision of reserves estimates and
estimates of recoverable quantities of natural gas and liquids from
plays and other sources not currently classified as proved,
probable or possible reserves or economic contingent resources,
including future net revenue estimates; risks associated with past
and future acquisitions or divestitures of certain assets or other
transactions or receipt of amounts contemplated under the
transaction agreements (such transactions may include third-party
capital investments, farm-outs or partnerships, which Encana may
refer to from time to time as “partnerships” or “joint ventures”
and the funds received in respect thereof which Encana may refer to
from time to time as “proceeds”, “deferred purchase price” and/or
“carry capital”, regardless of the legal form) as a result of
various conditions not being met; and other risks and uncertainties
impacting Encana's business, as described in its most recent Annual
Report on Form 10-K and as described from time to time in Encana’s
other periodic filings as filed on SEDAR and EDGAR.
Although Encana believes the expectations
represented by such FLS are reasonable, there can be no assurance
that such expectations will prove to be correct. Readers are
cautioned that the assumptions, risks and uncertainties referenced
above are not exhaustive. FLS are made as of the date of this news
release and, except as required by law, Encana undertakes no
obligation to update publicly or revise any FLS. The FLS contained
in this news release are expressly qualified by these cautionary
statements.
Further information on Encana Corporation is available on the company’s website, www.encana.com, or by contacting:
Investor contact:
Brendan McCracken
Vice-President, Investor Relations
(403) 645-2978
Patti Posadowski
Sr. Advisor, Investor Relations
(403) 645-2252
Media contact:
Simon Scott
Vice-President, Communications
(403) 645-2526
Jay Averill
Director, Media Relations
(403) 645-4747
SOURCE: Encana Corporation