With its purchase of Tom Brown last year, EnCana Corp.'s financial and performance results moved up in a number of categories as most analysts expected. The company posted a 12% increase in cash flow for the year, a 41% increase in operating earnings to US$1.98 billion -- excluding the after-tax impacts of a $1.4 billion gain on the sale of UK North Sea assets and other one-time impacts -- and a 49% increase in net earnings to $3.5 billion, or $7.51/share diluted.
In the fourth quarter EnCana reported an 81% increase in operating earnings and a six fold increase in net earnings to $2.58 billion, or $5.55/share diluted, which includes a $1.4 billion gain from the sale of the UK assets.
"During 2004, we sharpened our strategic focus on unconventional resources in North America -- natural gas and in-situ oilsands," said CEO Gwyn Morgan. "The acquisition of resource play focused Tom Brown Inc. for $2.7 billion and the divestiture of our U.K. North Sea assets for $2.1 billion, along with $1.4 billion in North American conventional asset divestitures, were significant strategic milestones.
"In the year, we became the continent's largest natural gas producer, at more than 3 Bcf/d -- enough gas to meet the daily requirements of every Canadian home, office, hospital, shopping center and commercial building."
Fourth quarter North American gas sales rose 16% to 3.1 Bcf/d compared to a year earlier. Natural gas production from the former Tom Brown assets in the U.S. increased about 13% in the seven months since the acquisition, the company said. EnCana added about 209 Bcfe of proved reserves, net of revisions, from former Tom Brown lands in the U.S. in 2004.
EnCana's proved gas reserves in North America increased 24% to 10.5 Tcf in 2004. About 2.2 Tcf was added through the drill bit and a net 0.9 Tcf was purchased primarily through the Tom Brown acquisition. With total net North America gas additions of 3.2 Tcf, compared to the 1.1 Tcf of production in 2004, EnCana's North America gas production replacement reached 290%.
EnCana still is planning to sell Canadian conventional properties producing about 22,000 boe/d. It is considering a variety of options to monetize these assets, including a cash sale or the conversion of the assets into an income trust. It also is planning the sale of its portfolio of discoveries and exploration interests in the Gulf of Mexico and producing properties and pipeline interests in Ecuador. As a result, Ecuador operations have been treated as discontinued. Proceeds from all of these divestitures are expected to be about $3 billion.
"For 2005, we will further increase our focus on growing our long-life resource plays. And once we have completed our planned divestitures, we expect that about 80% of EnCana's production will be natural gas, generating about 85% of the company's operating cash flow," Morgan said.
The company's board of directors is recommending that shareholders approve a two-for-one split of EnCana's common shares, which is expected to encourage greater market liquidity and wider distribution among retail investors. The proposed split will be voted on at its annual meeting on April 27 in Calgary.
In 2005, EnCana is forecasting daily gas sales of 3.35-3.5 Bcf, which would be a 15% increase from 2004 sales from continuing operations of 2.97 Bcf/d. With planned divestitures of Canadian conventional oil and gas properties, EnCana expects 2005 oil and NGLs sales from continuing operations to be between 150,000 and 170,000 b/d. Overall, EnCana is forecasting 2005 daily sales of 4.25-4.5 Bcfe, up about 10%.
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