Encana Corporation delivered strong financial and operating results in the third quarter of 2010, despite continued downward pressure on natural gas prices. Encana generated third quarter cash flow of US$1.1 billion, or $1.54 per share, and operating earnings were $98 million, or 13 cents per share.
Encana’s commodity price hedges contributed $211 million in realized after-tax gains, or 29 cents per share, to cash flow.
Total production in the third quarter was approximately 3.3 billion cubic feet of gas equivalent per day (Bcfe/d). Third quarter natural gas production per share increased 19 percent compared to the third quarter of 2009, on a pro forma basis.
“Our company’s solid financial and operating results once again demonstrate that Encana’s significant inventory of natural gas resources is capable of supporting substantial production growth. Third quarter natural gas production was up 17 percent year-over-year to 3.2 billion cubic feet per day (Bcf/d). Our strong growth in both our Canadian and USA divisions aligns with our long-term strategy of doubling natural gas production per share over the next five years. Our hedging program helps sustain cash flow during periods of lower prices. We maintain a strong balance sheet and we remain focused on being among the lowest-cost producers, continually pursuing operational efficiencies across all of our operations to help us maximize margins throughout the price cycle,” said Randy Eresman, Encana’s President & Chief Executive Officer.
“During this period of continued low prices, we remain focused on capital discipline and long-term value creation for every Encana share. We will not pursue growth at any cost. Capacity constraints for completion services, particularly in the USA Division’s Haynesville play in Louisiana and East Texas, have hindered the addition of some of the production volumes we had previously forecast in the last half of this year. High demand for hydraulic fracturing equipment and services threatens to accelerate the modest inflation we have seen this year. Across our organization we are committed to minimizing or eliminating cost increases through improved operational efficiencies and technology innovation. As a result, we are developing strategies to bring on new fit-for-purpose completion equipment, patterned after a highly successful program that saw our company contract for the construction and supply of fit-for-purpose drilling rigs – equipment that has improved our drilling and cost efficiency. Given these completion delays, we now are forecasting a deferral of about $200 million in capital investment from this year to 2011 and we have trimmed our production guidance to 3.315 Bcfe/d, an increase of about 12 percent per share from 2009,” Eresman said.
“North America’s ongoing oversupply of natural gas production has driven prices for the near term to levels that we believe are unsustainably low. As such, we are slowing the near-term growth rate of our resource plays. For the longer term, we continue to build the underlying productive capacity of our enormous resource portfolio for future years’ growth.
Our low-cost assets are capable of achieving our stated objective – doubling production per share over five years from 2009 levels. However, if these low prices persist, we plan to adjust our growth rate to align with our capacity to generate cash flow,” Eresman said.
IMPORTANT NOTE: Pro forma results defined
On November 30, 2009, Encana completed a major corporate reorganization – a split transaction that resulted in the company’s transition into a pure-play natural gas company and the spin-off of its Integrated Oil and Canadian Plains assets into Cenovus Energy Inc., an independent, publicly-traded energy company. To provide more useful comparative information, financial and operating results in this news release highlight Encana’s 2009 and 2008 results on a pro forma basis, which reflect the company as if the split transaction had been completed prior to those periods. In this pro forma comparative presentation, the results associated with the assets and operations transferred to Cenovus are eliminated from Encana’s consolidated results, and adjustments specific to the split transaction are reflected. Encana’s actual financial results for the comparative 2009 period are included in Encana’s Interim Consolidated Financial Statements. Additional financial information that reconciles the 2009 consolidated and pro forma financial information is included in this news release at the end of the financial statements.
Per share amounts for cash flow and earnings are on a diluted basis. Encana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report production, sales and reserves on an after-royalties basis. The company’s financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP).
Third Quarter 2010 Highlights
Financial
Operating
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Source:Encana , October 20, 2010;