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Encana Ups Production Guidance as Core Assets in Texas, Canada Outperform

Encana Corp. has upped its 2017 production guidance on the strength of second quarter results from its core assets in Texas and Western Canada, management said.

Rolling out 2Q2017 results Friday, the Calgary-based independent said it now expects 25-30% year/year growth by the fourth quarter from its core assets -- the Permian Basin and Eagle Ford Shale in Texas, and the Montney and Duvernay shales in Canada. During the first quarter, Encana had guided for 20% year/year growth from its core assets over the same period.

Encana's core assets produced 246,500 boe/d in the second quarter, a 9,200 boe/d sequential increase. The core assets accounted for about 80% of total production for the period, the exploration and production (E&P) company said.

Encana has been moving to an oilier production mix and saw that trend continue in 2Q2017, with liquids accounting for 40% of production, up from 35% in the first quarter. Total liquids production for the quarter was 124,900 b/d, 80% from oil and condensate. Natural gas production in the quarter totaled 1,146 MMcf/d, down from 1,418 MMcf/d in the year-ago quarter.

Total production fell 14% year/year to 316,000 boe/d, down from 368,300 boe/d in 2Q2016.

Management credited Encana's "cube" approach to stacked development, optimized completions and fractures (frack)and improved targeting for outperforming its average 180-day initial production (IP180) type curves by 20-45% during the quarter in its core four plays.

In the Midland sub-basin of the Permian, "the majority of our 2017 program has been drilled using our cube development approach with denser well spacing than our competitors," COO Michael McAllister said. "We now have enough long-term data to be convinced that our dense well spacing is leading to true incremental recovery.

"...In stacked reservoirs, there is a clear benefit to drilling and completing the entire cube at once. We minimize the risk of communications with depleted reservoirs and avoid offset frack hits. Above ground, the cube gives us significant cost and cycle time advantages. We can maximize efficiency and get higher utilization from our equipment, crews and infrastructure," he said.

The most recent “pacesetter cost" for a Permian well is $3.5 million for 9,000 feet of lateral, McAllister said.

Encana currently has 45 cube wells on production in the Permian.

In the Montney, Encana expects to double oil and condensate production year/year by 4Q2017. The E&P said it has drilled 28 condensate-rich cube wells in the northern part of its Tower acreage, where new processing capacity is set to come online later this year.

"We are now able to operate at development scale in the Montney," McAllister said, "and this impact is showing up in our costs and productivity." The E&P has seen recent drilling and completion costs in the play fall below $3.5 million per well, he said.

Based on recent efficiency improvements, Encana can now deliver on the five-year plan it announced last October-- including a 300% jump in cash flow and a 60% increase in production by 2021 -- at lower commodity prices, CEO Doug Suttles said.

"With the improvements we made in well productivity and demonstrating that we can offset cost inflation," the E&P can now work with prices lower than the previously announced $55/bbl West Texas Intermediate, $3/MMBtu New York Mercantile Exchange and $1/MMBtu AECO basis, he said. "We now think we can deliver that same plan at $5 less, and in fact we can continue to grow within cash flow at prices below $50/bbl.

“Exactly where we'll position the company for 2018, it's a bit early to decide, but the starting point for the frame is to grow within cash flow. We believe if you use today's strip, that plan we showed back in October is probably still intact."

For the quarter, Encana realized prices of $41.97/bbl for oil and natural gas liquids (NGL) and $2.56/Mcf for natural gas. That's compared with $38.47/bbl and $1.86/Mcf in the year-ago period.

Encana reported a net income of $331 million (34 cents/share), compared with a net loss in 2Q2016 of $601 million (minus 71 cents). Revenue totaled $1.08 billion, sharply higher from $364 million in the year-ago period.

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