"We had a strong second quarter off of the back of a very good first quarter, and we're meeting or exceeding our targets in every area of our business since announcing our new strategy eight months ago," says
The company achieved strong second quarter liquids growth from the five growth areas identified in last November's strategy launch. Oil production of 34,200 barrels per day (bbls/d) represented a 49 percent year-over-year increase, while 34,000 bbls/d of natural gas liquids production represented 38 percent growth. Year-to-date, the growth areas have received approximately 80 percent of
"We have been growing our liquids production more quickly than expected," says Suttles. "We are making excellent progress in our growth areas while at the same time delivering stronger than expected results from our base assets. Our operational performance and continued attention to cost efficiencies are helping to drive us towards higher margins and more profitable growth."
The transaction to acquire a sixth growth area in the Eagle Ford play closed on
The company also now expects 2014 total liquids production of 86,000 to 91,000 bbls/d, up from previous guidance projections of 68,000 to 73,000 bbls/d.
"We continue to successfully execute on our strategy and meet our key benchmarks," says Suttles. "We are transitioning our portfolio while delivering strong operating performance and maintaining the balance sheet strength necessary for us to be opportunistic. Our second quarter results have us well positioned for further success in the second half of the year."
The updated 2014 guidance can be downloaded from http://www.encana.com/investors/financial/corporate-guidance.html.
Activities in the quarter
- Completed the acquisition of certain properties in the Eagle Ford play in south
Texasfor approximately $2.9 billion, after closing adjustments.
- Entered into an agreement with
Jupiter Resources Inc.to sell Encana'sBighorn assets in west-central Albertafor approximately $1.8 billion, before closing adjustments. This transaction is expected to close by the end of the third quarter of 2014.
- Closed the sale of natural gas properties in
Wyoming'sJonah field for proceeds of approximately $1.6 billion, after closing adjustments.
- Closed the majority of the sale of
East Texasproperties for proceeds of approximately $427 millionof the total anticipated purchase price of approximately $530 million. It is expected the balance of the transaction will close in the third quarter of 2014.
- Entered into an agreement to sell
Encana'sCavalier power plant near Strathmore, Alberta, as well as the company's 50 percent interest in a power plant in Balzac, Alberta.
- Divested a majority of the U.S.-based assets of
Encana Natural Gas Inc., an indirect, wholly owned subsidiary.
- Sold interest, including liquefied natural gas (LNG) equipment, in the
Elmworth, Alberta LNG production facility.
- Completed the IPO of 52.0 million common shares of PrairieSky on
May 29, 2014, at an offering price of C$28.00per common share. On June 3, 2014, Encanaannounced that the over-allotment option granted to the underwriters to purchase up to an additional 7.8 million common shares at a price of C$28.00per common share was exercised in full. The aggregate proceeds from the IPO were approximately C$1.67 billion. Subsequent to the IPO, Encanaowns 70.2 million common shares of PrairieSky, representing a 54 percent ownership interest.
DJ Basin: Drilling cycle times are averaging three days below the 2013 average of 14 days. During the second quarter, Encanasuccessfully drilled three 10,000-foot laterals as the company continued to optimize well design. Montney: Seven wells brought on stream in the second quarter are exceeding expectations with initial production rates of 12 to 14 million cubic feet per day (MMcf/d). The company is currently drilling on three pad sites in the Pipestonearea and achieving drilling costs of about $3 millionper well, a nine percent improvement compared to the first quarter of 2014. San Juan: Encanacontinues to advance commercial development with second and third rigs added into the play during the second quarter. Well performance has consistently been at or above expectations with initial production rates between 400 to 500 bbls/d of oil. Encanacontinues to work with the Bureau of Land Managementto streamline the well permitting process. Duvernay: Encanais currently drilling on three eight-well pads in the Simonette area of the play. Ten high-intensity completion horizontal wells in Simonette are meeting or exceeding expectations, with initial production averaging about 1,300 barrels of oil equivalent per day (boe/d) per well. Spud to rig release times have improved by an average of 17 days since the first quarter, resulting in cost savings of approximately $1.5 millionper well. Five rigs are currently running in the play. Tuscaloosa Marine Shale: All wells drilled in the play so far in 2014 are generally meeting expectations. Six net wells have been drilled year-to date and two rigs will run through to year-end.
- Eagle Ford:
Encanacompleted the acquisition of its Eagle Ford position on June 20. Three rigs are currently operating in the area and one additional rig is scheduled by year-end.
|Second Quarter Highlights|
(for the period ended
|($ millions, except per share amounts)||2014||2013|
|Cash flow 1||656||665|
|Per share diluted||0.89||0.90|
|Operating earnings 1||171||247|
|Per share diluted||0.23||0.34|
|Earnings Reconciliation Summary|
|Net earnings attributable to common shareholders||271||730|
|After tax (addition) deduction:|
|Unrealized hedging gain (loss)||8||332|
|Non-operating foreign exchange gain (loss)||156||(162)|
|Gain (loss) on divestiture||135||-|
|Income tax adjustments||(194)||313|
|Operating earnings 1||171||247|
|Per share diluted||0.23||0.34|
|1 Cash flow and operating earnings are non-GAAP measures as defined in Note 1 on page 4.|
(for the period ended
|(After royalties)||2014||2013||% Change|
|Natural gas (MMcf/d)||2,541||2,766||-8|
|Oil and NGLs ($/bbl)|
|1 Realized prices include the impact of financial hedging.|
A conference call and webcast to discuss the second quarter 2014 results will be held for the investment community today at
NOTE 1: Non-GAAP measures
This news release contains references to non-GAAP measures as follows:
- 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 cash tax on sale of assets. Free cash flow is a non-GAAP measure defined as cash flow in excess of capital investment, excluding net acquisitions and divestitures, and is used to determine the funds available for other investing and/or financing activities.
- Operating earnings is a non-GAAP measure defined as net earnings attributable to common shareholders excluding non-recurring or non-cash items that management believes reduces the comparability of the company's financial performance between periods. These after-tax items may include, but are not limited to, unrealized hedging gains/losses, impairments, restructuring charges, foreign exchange gains/losses, gains/losses on divestitures, income taxes related to divestitures and adjustments to normalize the effect of income taxes calculated using the estimated annual effective tax rate.
These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding
ADVISORY REGARDING OIL AND GAS INFORMATION -
Initial production and short-term rates are not necessarily indicative of long-term performance or of ultimate recovery.
In this news release, certain oil and NGLs volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic feet (Mcf). Cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the well head. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS - In the interests of providing
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the company's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include, among other things: volatility of, and assumptions regarding natural gas and liquids prices, including substantial or extended decline of the same and their adverse effect on the company's operations and financial condition and the value and amount of its reserves; assumptions based upon the company's current guidance; fluctuations in currency and interest rates; risk that the company may not conclude divestitures of certain assets or other transactions or receive amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which
imprecision of reserves estimates and estimates of recoverable quantities of natural gas and liquids from resource plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources, including future net revenue estimates; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities; unexpected cost increases or technical difficulties in constructing or modifying processing facilities; risks associated with technology; the company's ability to acquire or find additional reserves; hedging activities resulting in realized and unrealized losses; business interruption and casualty losses; risk of the company not operating all of its properties and assets; counterparty risk; risk of downgrade in credit rating and its adverse effects; liability for indemnification obligations to third parties; variability of dividends to be paid; its ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; the company's ability to secure adequate product transportation; changes in royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations or the interpretations of such laws or regulations; political and economic conditions in the countries in which the company operates; terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions made against the company; risk arising from price basis differential; risk arising from inability to enter into attractive hedges to protect the company's capital program; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by
Assumptions with respect to forward-looking information regarding expanding
Forward-looking information respecting anticipated 2014 cash flow for
Furthermore, the forward-looking statements contained in this news release are made as of the date hereof and, except as required by law,
Further information on
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