Encana Corp. is putting its pedal to the metal in the Permian Basin with improving efficiencies and has elected to transfer capital earmarked for 2016 into the play, CEO Doug Suttles said Thursday.

Investment has been increased by $150 million in the Permian based on strong margins and lower costs to drill and complete (D&C) wells, the CEO said during a conference call to discuss third quarter results.

Like its peers, the Calgary-based independent suffered impairments to the value of its natural gas and oil portfolio during 3Q2015 — for the third straight quarter — which stole $1.066 billion from the bottom line. Net losses totaled $$1.235 billion (minus $1.47/share), versus year-ago profits of $2.807 billion ($3.79). While cash flow declined year/year to $371 million from $807 million, it was $190 million higher sequentially because of D&C improvements.

“Our strategy of a focused portfolio of top-tier high-margin assets that grow our oil and condensate production is really coming together and showing up in our results,” Suttles said. “The combination of our focus on efficiency and expanding margins meant that in the third quarter, our upstream operating cash flow was the same as the second quarter even though the WTI [West Texas Intermediate] price dropped by over $11/bbl.”

The focus is on D&C efficiency, particularly in the four core holdings: the Permian Basin and Eagle Ford Shale in Texas and Canada’s Duvernay and Montney formations. Encana has worked the two Texas leaseholds for only a year. It paid $7 billion to buy Permian-focused Athlon Energy Inc. (see Shale Daily, Sept. 29, 2014). Another $3.1 billion was spent last year to acquire the Eagle Ford leasehold from Freeport-McMoRan Inc. (see Shale Daily, May 7, 2014). With the turn to liquids, Encana is selling its Haynesville Shale and Denver-Julesburg Basin properties (see Shale Daily, Oct. 8;Aug. 25).

“This quarter we have captured additional cost savings and now expect to generate $400 million of operating and capital cost efficiencies by year-end,” Suttles said. “And we believe that about two-thirds of these efficiencies will continue, even if the commodity price were to rise significantly.”

One of the “most important drivers of efficiency is innovation…and we have worked hard to imprint this even deeper into our culture.” About $65 million is being invested this year “to leap forward as we call it and find the best answer on important return drivers like well-spacing, targeting completion designs, production control and logistics.”

Suttles, who came aboard two years ago, has moved the company sharply away from natural gas production to capture more oil and liquids. The decision was evident in 3Q2015 results.

Liquids output overall rose 10% sequentially and 35% year/year to 140,400 b/d, marking an eighth consecutive quarter of liquids growth, while natural gas output fell 30% to average 1.547 Bcf/d. In the four core plays, production climbed 12% sequentially to 249,300 boe/d.

The D&C efficiencies in one year’s time also are compelling. D&C horizontal costs in the Permian are down by $2 million per well, while Eagle Ford costs have fallen by $2.4 million.

“Innovation is in our DNA,” COO Mike McAllister said. “We understand how continuous improvements are crucial to delivering quality corporate returns. Historically, the industry has made gradual improvements over hundreds or even thousands of wells. Our approach this year has been to push the limits to find commercial edge as quickly as possible. It’s important to note that we do this in parallel with our ongoing development, not as a separate activity.”

Permian output was up 28% year/year and is on track to deliver 50,000 boe/d during 4Q2015, McAllister said.

“We’ll be first in the play to employ simultaneous operations, reducing cost and cycle times. We reduced drill times to fit-for-purpose rigs, well optimizing — well casing and bit design. In the quarter we have set a record, drilling 3,400 feet of lateral in one day. We established a new drilling cost benchmark of approximately $2.2 million.”

“Our well spacing pilot pad in Midland County has one of the most sophisticated evaluations of wells in the industry, with 16 pressure gauges, 10 casing fleets across a 3,400 square foot vertical section from the Lower Spraberry to the Woodford Shale,” McAllister said. “This pad gives Encana the only direct and real-time measurement of pressure interference between wells and benches in the Midland Basin. Our learnings from this pad, combined with the rest of our technical work, have given us tremendous insight into well spacing and optimal fracture design in the Permian.”

Encana now has 30% of its Permian production tied into pipeline gathering systems “and are on track for 50% before year-end. This will improve our operating margins by approximately $1 to $2 per barrel. In addition, this also improves our transportation reliability.

“These improvements in cost and production are generating returns averaging greater than 30% at strip pricing,” McAllister said.

In the Eagle Ford, Encana is on track to deliver 57,000 boe/d in the final quarter. Production during 3Q2015 was 54,000 boe/d, up 18% sequentially and 25% higher since the acquisition.

“Through the third quarter, we ran two rigs and drilled 10 net wells,” McAllister said. “We also brought 29 net wells on production with the start-up of the Patton Trust South facility. We realized an average D&C cost of approximately $5.4 million per well, which beat the previous target of $5.6 million per well that we set just last quarter. By increasing the number of fractures per day, our team has reduced the amount of time it takes to complete the well by 40%. These realized savings will have a permanent and sustainable effect on our cost structure, further improving the value of this asset. We are now targeting $5.2 million per well.”

Infill wells in the Eagle Ford’s Graben and Kenedy plays “represent the bulk of our 600-well inventory…The work with completions design in Eagle Ford is a great example of how we can move learnings across the portfolio. Our reduced cluster spacing has generated a 50% improvement in production per well over the first six months. With cost savings of $2.6 million per well since the acquisition, coupled with our improved well performance, we are seeing returns averaging greater than 30% at strip pricing.”

Duvernay production rose to 9,300 boe/d, 59% higher sequentially and is on track to deliver 17,000 boe/d in 4Q2015.

“The Duvernay works and it’s becoming material,” McAllister said. “Our innovation in this play has focused on reducing well cost and increasing productivity. In the quarter, we achieved a new benchmark completion cost of $6.4 million per well. Our water hub reduced our water handling cost by $1.2 million per well…Our approach utilizes dual drilling rigs, dual fracture crews, targeted laterals, high intensity completions and our water infrastructure.

“The Duvernay costs are higher, but…wells are more productive. As a result of this higher productivity and a competitive fiscal regime, we realize the same returns as in the Eagle Ford. As a result, we are seeing returns averaging greater than 30% at strip pricing…” Encana plans to defer the startup of its second gas plant in the Duvernay until the Alberta government completes a review into how much producers pay in resource royalties.

Meanwhile, in the Montney, 3Q2015 production was 141,000 boe/d. Encana has experienced dry gas curtailments since 2Q2015 because of high line pressures on the TCPL system. During 3Q2015, production was restricted by about 40 MMcf/d.

“We’re following this closely and continue to mitigate the value impact by preferentially flowing liquids-rich wells and curtailing dry gas wells,” McAllister said.

Encana received a realized gas price of $3.71/Mcf in 3Q2015, versus $4.03 a year ago. The realized price for oil fell to $49.38/bbl from $90.22, while liquids prices declined to $19.57/bbl from $48.76.