Encana’s (TSX:ECA) (NYSE:ECA) performance through the third
quarter, coupled with significant oil and condensate growth through
October in the Permian and Montney, reflects the strong execution
of its strategy and five-year plan. Driven by innovation, low costs
and a higher value production mix, Encana expects to grow its
non-GAAP corporate margin to around $11 per barrel of oil
equivalent (BOE) in 2017. The company is firmly on track to meet or
beat its 2017 targets and expects core asset production growth to
be at the top end of guidance. Highlights include:
- Third quarter net earnings of $294 million, cash from operating
activities of $357 million and non-GAAP cash flow of $270
million.
- Year-to-date non-GAAP corporate margin of $10.77 per BOE; on
track for full-year corporate margin of around $11 per BOE, up over
65 percent from year-end 2016.
- Third quarter total production of 284,000 barrels of oil
equivalent per day (BOE/d); October total production was more than
325,000 BOE/d, an increase of 14 percent from the third
quarter.
- Third quarter core asset production of 248,000 BOE/d; in
October, this increased by 22 percent to over 302,000 BOE/d. Encana
expects its core assets will deliver around 30 percent production
growth from the fourth quarter of 2016 to the fourth quarter of
2017.
- Third quarter liquids production of 127,500 barrels per day
(bbls/d), including oil and condensate of 103,100 bbls/d; in
October, liquids production increased by 18 percent to over 150,000
bbls/d and oil and condensate production increased by 16 percent to
120,000 bbls/d.
- Permian production in October averaged 80,000 BOE/d, up 25
percent from the third quarter and ahead of its fourth quarter 2017
target of 75,000 BOE/d.
- Montney production in October totaled 147,000 BOE/d, up 32
percent from the third quarter, with liquids production of more
than 25,000 bbls/d, up 42 percent from the third quarter.
- During Investor Day, Encana updated its five-year plan and
expects its non-GAAP return on capital employed to climb to between
10 and 15 percent, a 25 percent compound annual growth rate in
non-GAAP cash flow and approximately $1.5 billion of cumulative
non-GAAP free cash flow.
“Driven by innovation and strong execution, each
of our core assets is firmly on track to meet or beat its 2017
targets,” said Doug Suttles, Encana President & CEO.
“Consistent with our plan, the Permian and Montney are delivering
significant oil and condensate growth in the fourth quarter,
driving continued corporate margin expansion and setting the stage
for a strong finish to the year.”
“Our financial and operational performance
demonstrates our strategy is working and that we can deliver
quality corporate returns through the commodity cycle,” added
Suttles. “We are generating significant momentum for 2018 and are
strongly positioned to deliver leading returns, cash flow growth
and free cash flow through our five-year plan.”
Third quarter results:
Firmly on track to meet or beat 2017 deliverables
Encana generated cash from operating activities of $357 million in
the quarter compared to $186 million in the third quarter of 2016.
Non-GAAP cash flow was $270 million, up from $252 million in the
same period last year. Encana delivered third quarter net earnings
of $294 million, or $0.30 per share. Non-GAAP operating earnings
were $24 million.
Encana’s third quarter production totaled
284,000 BOE/d. This included total liquids production of 127,500
bbls/d, of which more than 80 percent was high-value oil and
condensate. Third quarter liquids volumes contributed 45 percent of
total production, up from 35 percent of total production in the
third quarter of 2016.
The company’s core assets contributed 248,000
BOE/d, representing 87 percent of total third quarter production,
despite impacts from Hurricane Harvey and third-party western
Canadian natural gas curtailments. Third quarter natural gas
production averaged 939 million cubic feet per day (MMcf/d). The
reduction from the second quarter was largely the result of the
sale of Piceance, which closed on July 26, 2017.
Innovation and execution performance:
Delivering high-margin production growthThrough the
continual refinement of its cube development and advanced
completion designs, Encana is maximizing returns and resource
recovery. Consistent with its plan, and driven by strong
performance in the Permian and Montney, Encana delivered
significant oil and condensate growth through October. Each of the
company’s core assets is expected to meet or exceed its 2017
targets.
In the Permian, cube development and the latest
high-intensity completion designs are delivering leading well
performance. In October, production averaged 80,000 BOE/d, up 25
percent from the third quarter and well ahead of its fourth quarter
2017 target of 75,000 BOE/d. The Permian is on track to deliver 50
percent production growth between the fourth quarter of 2016 and
the fourth quarter of 2017.
In the Montney, precision well targeting and
advanced completions are driving well productivity. Saturn, the
third facility that supports Encana’s condensate focused growth
plan, started up on November 1, well ahead of plan and under
budget. In October, Montney liquids production was over 25,000
bbls/d, up 42 percent from the third quarter. Driven by increased
liquids, Encana’s margin in the Montney is on track to increase by
over 50 percent from the fourth quarter of 2016 to the fourth
quarter of 2017.
The Eagle Ford continues to outperform its 2017
targets, maintain production and generate free cash flow. Advanced
completions are delivering some of the highest productivity wells
in the basin. In October, Eagle Ford production averaged 51,000
BOE/d including liquids volumes of 41,000 bbls/d.
Encana delivered record Duvernay production in
the third quarter and its first advanced completion pilot in the
play is delivering encouraging early well results. October
production averaged over 24,000 BOE/d including liquids of over
12,000 bbls/d, up 16 percent and 22 percent respectively from the
third quarter.
Balance sheet strength, lower costs and
quality corporate returnsStrong execution performance and
continued efficiencies have lowered Encana’s costs and strengthened
its resilience. The company is on track to deliver a 10 percent
capital productivity improvement by year-end. Year to date, Encana
has reduced transportation and processing costs by $98 million and
operating expense (excluding long-term incentive costs) by $56
million, compared to 2016.
Encana’s strong balance sheet and liquidity
position it to manage commodity price volatility and deliver
quality corporate returns throughout the commodity cycle. By
year-end, the company expects net debt to adjusted EBITDA ratio
will be about two times and to have total liquidity of over $5
billion.
In 2018, Encana expects its total capital and
cash flow to be in balance. Through its five-year plan, which is
built on flat $50 WTI and $3 NYMEX natural gas prices, Encana
expects its return on capital employed will climb to between 10 and
15 percent, to deliver approximately 25 percent compound annual
growth in non-GAAP cash flow and generate around $1.5 billion of
cumulative non-GAAP free cash flow.
Managing risk, preserving optionality and creating
valueEncana's multi-basin portfolio, short-cycle capital
program and robust risk management strategy provide significant
flexibility and position the company to manage risk and protect
value. Encana’s risk management reflects its commitment to
delivering leading returns through the commodity cycle.
As at October 31, Encana has hedged
approximately 88,000 bbls/d of expected oil and condensate
production for the balance of the year using a variety of
structures at an average price of $53.69 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 $3.02 per thousand cubic feet
(Mcf).
For 2018, the company has hedged approximately
88,000 bbls/d of expected oil and condensate production at an
average price of $53.23 per bbl and approximately 660 MMcf/d of
expected natural gas production at an average price of $3.07 per
Mcf.
Dividend DeclaredOn November 7,
2017, the Board declared a dividend of $0.015 per share payable on
December 29, 2017 to common shareholders of record as of December
15, 2017.
|
Third Quarter Highlights |
Non-GAAP Cash Flow Reconciliation |
(for the period ended Sept. 30)($ millions) |
|
Q3 2017 |
|
Q3 2016 |
|
|
|
|
|
Cash from (used in) operating activities |
|
357 |
|
186 |
Deduct (add back): |
|
|
|
|
Net change in other assets and liabilities |
|
(11) |
|
(6) |
Net change in non-cash working capital |
|
98 |
|
(60) |
Current tax on sale of assets |
|
- |
|
- |
Non-GAAP cash flow1 |
|
270 |
|
252 |
Non-GAAP Operating Earnings
Reconciliation |
Net earnings (loss) |
|
294 |
|
317 |
Before-tax (addition) deduction: |
|
|
|
|
Unrealized gain (loss) on risk management |
|
(76) |
|
41 |
Restructuring charges |
|
- |
|
(2) |
Non-operating foreign exchange gain (loss) |
|
203 |
|
(44) |
Gain (loss) on divestitures |
|
406 |
|
395 |
|
|
533 |
|
390 |
Income tax |
|
(263) |
|
(105) |
After-tax (addition) deduction |
|
270 |
|
285 |
Non-GAAP operating earnings
1 |
|
24 |
|
32 |
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 Sept. 30)(average) |
|
Q3 2017 |
|
Q3 2016 |
|
% ∆ |
Liquids (Mbbls/d) |
|
127.5 |
|
117.0 |
|
9 |
Natural gas (MMcf/d) |
|
939 |
|
1,326 |
|
(29) |
Total production (MBOE/d) |
|
284.0 |
|
338.0 |
|
(16) |
Liquids and Natural Gas Prices |
|
|
Q3 2017 |
|
Q3 2016 |
Oil and NGLs ($/bbl) |
|
|
|
|
WTI |
|
48.21 |
|
44.94 |
Encana realized liquids price1 |
|
41.86 |
|
41.82 |
Natural gas |
|
|
|
|
NYMEX ($/MMBtu) |
|
3.00 |
|
2.81 |
Encana realized gas price1
($/Mcf) |
|
2.23 |
|
2.02 |
1 Prices include the impact of realized gain
(loss) on risk management.
Third Quarter Conference CallA conference call
and webcast to discuss the 2017 third quarter results will be held
for the investment community today 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 third
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 (used in) 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
Free Cash Flow is a non-GAAP measure defined as Non-GAAP
Cash Flow in excess of capital investment, excluding net
acquisitions and divestitures. Non-GAAP Corporate
Margin is a non-GAAP measure defined as Non-GAAP Cash Flow
per BOE of production.
- Return on Capital Employed (ROCE) is a
non-GAAP measure defined as Adjusted Operating Earnings divided by
Capital Employed. Adjusted Operating Earnings is defined as
non-GAAP Operating Earnings (Loss) plus after-tax interest expense.
Capital Employed is defined as average net debt plus average
shareholders’ equity. 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 calculated as Net Debt divided by Adjusted EBITDA.
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.
ADVISORY REGARDING FORWARD-LOOKING
STATEMENTS - This news release contains certain
forward-looking statements or information (collectively, “FLS”)
within the meaning of applicable securities legislation, including
the United States Private Securities Litigation Reform Act of 1995.
FLS include: expectation of meeting or exceeding targets in
corporate guidance; execution of the strategy and five-year plan,
including improvements in well performance, reduction of costs,
shift to higher value production mix, funding of capital program
and other metrics contained therein; growth of non-GAAP corporate
margin, expected returns and recovery, profitability and margins of
a play, return on capital employed, cash flow and free cash flow,
including impact of commodity prices; anticipated production,
product types and growth between periods, including growth from
core assets; momentum into 2018; expectation total capital and cash
flow to be in balance in 2018; success of and benefits innovation,
including from cube development approach, precision well targeting
and advanced completion designs; anticipated costs, strengthening
of balance sheet, including expected net debt and debt ratios, and
delivering value to shareholders; ability to access sources of
liquidity; performance relative to peers; anticipated hedging and
outcomes of risk management program; 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; ability to access credit facilities and
shelf prospectuses; assumptions contained in Encana’s corporate
guidance, five-year plan and in this news release, including margin
increase in Montney that reflects per unit netback normalized to
$50/bbl WTI, $3/MMBtu NYMEX and $1/MMBtu AECO differential,
excluding hedging impact, with foreign exchange held constant; data
contained in key modeling statistics; enforceability of risk
management program; 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; 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, benefits achieved
and general industry expectations.
Risks and uncertainties that may affect these
business outcomes include: ability to generate sufficient cash flow
to meet obligations; commodity price volatility; ability to secure
adequate transportation and potential pipeline curtailments;
variability and discretion of Encana's board of directors to
declare and pay dividends, if any; timing and costs of well,
facilities and pipeline construction; business interruption and
casualty losses or unexpected technical difficulties, including
impact of weather; counterparty and credit risk; impact of a
downgrade in credit rating and its impact on access to sources of
liquidity; fluctuations in currency and interest rates; risks
inherent in Encana's corporate guidance; failure to achieve cost
and efficiency initiatives; risks inherent in marketing operations;
risks associated with technology; changes in or interpretation of
laws or regulations; risks associated with existing and potential
lawsuits and regulatory actions made against Encana; impact of
disputes arising with its partners, including suspension of certain
obligations and 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, 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:Corey
CodeVice-President, Investor Relations(403)
645-4606
Patti PosadowskiSr. Advisor, Investor
Relations(403) 645-2252
Media contact:Simon
ScottVice-President, Communications(403)
645-2526
Jay AverillDirector, Media
Relations(403) 645-4747
SOURCE: Encana Corporation