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Encana Smashes 4Q Guidance as Output Jumps 31%; Most ‘18 Capex Geared to Permian, Montney

North American super independent Encana Corp. closed out 2017 on track to meet or exceed its five-year growth targets after fourth quarter production sharply exceeded expectations, management said Tuesday.

The Calgary-based exploration and production company “is firmly on track to meet or exceed” targets shared last October, with core assets delivering production growth of close to 31% year/year in 4Q2017. Output exceeded an initial target of more than 20% and smashed the top end of a revised guidance of 25-30%.

Encana accomplished its growth during 2017 with capital expenditures (capex) of about $1.8 billion.

“Consistent with our plan, we delivered a strong finish to 2017," said CEO Doug Suttles. “We have established a powerful track record of meeting and beating our targets, continuously driving efficiency and capital discipline. We are positioned to deliver significant value growth in 2018 while funding our capital program from corporate cash flows.”

Capex this year is expected to mirror 2017 with “modest allocation adjustments to optimize delivery.”

Nearly all its anticipated 2018 capital is destined for the “core four” assets, with around 70% directed to the Permian Basin and Montney formation. The other two core assets in the portfolio today are the Eagle Ford Shale and Duvernay formation.

“The company anticipates between 25% to 35% production growth from its core assets from the fourth quarter of 2017 to the fourth quarter of 2018, with significant oil and condensate growth in the second half of the year,” management said.

Using its large-scale cube development model, the company expects to maximize returns and resource recovery from the stacked, myriad reservoirs. The approach also is maximizing capital efficiency, management said.

COO Mike McAllister and Suttles discussed Encana’s cube model last November, a systematic approach similar to the manufacturing hub technique the company perfected in the onshore fields years ago.

Encana no longer drills single wells because it no longer makes economic sense, Suttles said. Credit the cube, a stacked development technique to ensure drilling and completions are optimized. During the second quarter, the cube advantage led to average 180-day initial production type curves improving by 20-45% in the core four. “I can't think of a single well that's not going to be drilled that's not in a cube,” McAllister said at the time.

Cube development and enhanced completion designs helped Permian production during 4Q2017 exceed 80,000 boe/d, well ahead of Encana’s forecast of 75,000 boe/d.

In the Montney, liquids production more than doubled year/year in the final three months, driven in part by a focus on condensate-rich wells and the early start-up of the Tower, Saturn and Sunrise processing plants.

Under the Cutbank Ridge Partnership with Veresen Midstream, Encana constructed the three processing plants on a contracted basis. Veresen funded and owns the facilities, with Encana using them to process Montney production under a fee-for-service agreement.

This year Encana expects to grow its liquids production as it fills capacity at the Canadian plants and completes two additional liquids hubs in the second half of the year.

Encana also noted that it has minimized its exposure to the AECO Hub natural gas pricing by growing condensate production and diversifying market access.

“Overall, approximately 4% of expected total 2018 revenue is exposed to AECO pricing,” said management.

During the fourth quarter Encana also sold most of its Wheatland assets in south-central Alberta, which included 520,000 net acres and 4,750 gas wells. Production from the assets during 2017 was estimated at 60 MMcf/d.

Encana is scheduled to deliver its 2018 guidance and fourth quarter/full year 2017 results on Feb. 15.

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