Focusing on its "core four" assets in Texas and Western Canada, Calgary-based Encana Corp. said Wednesday it is already on track to surpass the 2017 forecasts it gave during its annual investor day in October.
The exploration and production (E&P) company said it now expects production growth from 4Q2016 to 4Q2017 to "be in the upper range of, or exceed" previous guidance of 15-20%. Having already reached projected 2017 activity and rig count levels before the calendar rolled over to the new year, Encana is off to a good start as it pursues its five-year growth targets, management said.
Based on a West Texas Intermediate (WTI) price of $55/bbl and a $3/MMBtu natural gas price on the New York Mercantile Exchange (Nymex), Encana said it's on pace to grow production by 30% from 4Q2017 to 4Q2018 from the Permian Basin, the Eagle Ford Shale and the Montney and Duvernay formations in Western Canada.
CEO Doug Suttles said Encana expects to keep drilling costs down through efficiency in 2017, even as oilfield service costs are expected to rise with recovering commodity prices.
"Our performance gives us confidence that we can deliver one of the best value creation stories in our industry," Suttles said. "We are one of, if not the highest performing and most efficient companies in each of our core four assets. Through our relentless focus on efficiency, we expect our total 2017 drilling and completion costs will be flat or down year-over-year despite inflation for some services."
Encana is currently operating five horizontal rigs in the Permian of West Texas, with four in Midland County and one in Howard County. The E&P said four recent Midland County wells have produced at 30-day initial production (IP) rates of 1,050 boe/d, with 815 b/d of oil. The wells were drilled with average laterals of 8,650 feet, with two targeting the Wolfcamp A, one in the Wolfcamp B and one the Lower Spraberry.
In the Eagle Ford, Encana has two rigs running. Two recently completed wells in Karnes County with average laterals of 4,700 feet delivered an average 30-day IP rate of 1,750 boe/d, with 1,160 b/d of oil. Two Austin Chalk wells, with laterals averaging 3,400 feet, have achieved a 90-day IP rate of 1,800 boe/d, with 1,550 b/d of oil.
In Western Canada, four rigs are targeting the Duvernay and two rigs target the Montney, including one in Pipestone. Encana reported 90-day IP rates of 1,740 boe/d, including 1,000 b/d of condensate, from four recent Pipestone wells, which had average laterals of 9,000 feet. The company is increasing activity in the Cutbank Ridge Partnership in anticipation of a 4Q2017 start-up of Veresen Midstream's Tower and Sunrise plants.
In the Duvernay, two recent wells drilled in the oil window with average laterals of 10,150 feet delivered a 30-day IP rate of 1,500 boe/d, with 1,000 b/d of condensate, Encana said.
Encana expects to deliver a corporate margin of $10/boe at $55 WTI and $3/MMBtu Nymex, up from the $8/boe guidance provided in October. Margin is on track to grow to $13/boe on the same price assumptions by 2018, management said.
Encana is heading into 2017 with 78,000 b/d of 2017 crude and condensate production hedged at an average $53.93/bbl, while 862 MMcf/d of expected 2017 gas production is hedged at $3.14/Mcf.
Encana’s management team, shifting its portfolio toward a heavier mix of oil and liquids in recent years, said in October during the investor presentation that it is targeting 60% production growth and a 300% increase in cash flow by 2021. Encana at the time projected a 2017 budget of around $1.7-1.8 billion, up from $1.1-1.2 billion in 2016, with the Permian expected to get the biggest share of 2017 capital.
The company plans to reveal its final 2017 budget and guidance when it releases 4Q2016 results next month.