Encana Corp. is hunkering down with a reduced spending plan for 2012 in dry natural gas plays and shifting more investments to liquids and oil-prone unconventionals in North America, CEO Randy Eresman said Wednesday.
Speaking at the Barclays Capital Energy-Power CEO Conference in New York City, the Encana chief outlined the shift by North America's second largest gas producer. Asset sales, like the latest $590 million deal to sell Piceance Basin midstream properties to an undisclosed buyer, will provide a financial cushion, he told the audience. And the company still remains on track to "meet or exceed" a plan to sell $1-2 billion in assets by the end of this year.
"We are currently planning for a reduced capex [capital expenditure] program for 2012 should gas prices remain stubbornly low," Eresman said. "At this point in time, we don't feel it is appropriate to be growing production at a very high rate in this marketplace, to exaggerate the oversupply situation."
The Piceance Basin properties to be sold, by subsidiary Encana Oil & Gas (USA) Inc., were built in the last decade to serve the producer's Mamm Creek, Orchard and South Parachute output in the area near Rifle, CO. The midstream units gather and transport about 500 MMcf/d and include about 260 miles of pipeline and 90,000 hp of compression facilities.
Encana has put several midstream properties on the market; early this year the U.S. subsidiary sold the Fort Lupton, CO midstream properties to Western Gas Partners LP for $303.3 million (see Daily GPI, Jan. 19). It also has a list of gas-weighted properties that it would like to sell outright or to create joint ventures.
Leaseholds and assorted facilities also are up for sale in Alberta, British Columbia and in the Barnett Shale. The producer still wants to secure a joint venture partner for its Cutbank Ridge leasehold in Alberta; partnership talks with PetroChina International Ltd. fell apart in June (see Shale Daily, June 22).
"Expected proceeds of these divestitures will supplement our cash flow generation in the current low price environment, and provide us with further financial flexibility going in to 2012 and in to 2013," Eresman said. So far this year Encana has sold about $1 billion of properties; it also has acquired about $400 million of liquids-rich and oil assets.
Because of sustained low natural gas prices, "we believe it is prudent to live within the boundaries of our cash flow generation," he said. "That is to say, our 2012 capex will likely be lower than our forecasted cash flow, less dividends. Although we have just begun our annual budget process, this is what you should expect from Encana this coming year...Our intention is to pragmatically reduce our debt level."
Encana's 2011 budget has spending outpacing cash flow. The company plans to spend $4.6-4.8 billion in 2011, with cash flow of $4-4.3 billion. That spending is coupled with an average annual dividend payout of about $600 million.
In addition to its substantial dry gas inventory, which is in almost every major gas basin of North America, Encana now has prospective liquids and oil prospects in the Collingwood Shale in Michigan, Alberta's Duvernay Shale and the Tuscaloosa Marine Shale in Mississippi and Louisiana.
According to company reports, Encana's largest position is in the Piceance Basin, where the company holds 840,000 net acres. It holds 693,000 net acres in the Montney Shale, 488,000 in Bighorn Basin, 425,000 in the Collingwood Shale, 365,000 in the Duvernay Shale, 350,000 in the Haynesville Shale, 264,000 in the Horn River Basin, 250,000 in the Tuscaloosa Marine Shale, 120,000 in the Green River Basin, 55,000 in the Barnett Shale and 40,000 in the Niobrara/Denver-Julesburg Basin.
"These opportunities are in addition to those that pre-exist on our extensive North American land base," said Eresman. "We are also implementing plans to increase natural gas liquids recovery from our current high-energy content natural gas streams...At the same time Encana has made several investments and joint ventures to expand the North American market for natural gas, which include our 30% interest in the Kitimat liquefied natural gas [LNG] facility and multiple investments in compressed natural gas and LNG fueling station infrastructure."
Encana has "an opportunity to create additional value during this period of low natural gas prices," said the CEO. "Our capital investments target our most economic growth opportunities. We intend to apply our considerable expertise -- employing the same leading technologies and operational efficiencies that have so successfully unlocked our natural gas resource plays -- to the evaluation and development of our liquids potential.
"Over the next 12 to 18 months, we expect that our delineation initiatives on these emerging plays will help us further define a detailed plan for growing our liquids production over the long term."