With oil and gas volumes increasing by 4% year/year across its North American basins, Encana Corp. on Thursday raised its 2019 production guidance.
The independent also unveiled big news, with plans to rebrand as Ovintiv Inc. early next year and move its headquarters to the United States from Calgary.
CEO Doug Suttles held court during a conference call to discuss the quarter’s results and plans going forward. Encana expects to continue generating significant free cash flow in the fourth quarter, he noted.
“Cost performance has been strong,” and Encana is now guiding to the bottom end of the previous estimate of $12.75-13.25/boe. Total costs fell to an average $11.95/boe in 3Q2019.
"Our ability to drive efficiency improvements ensures that we can continue to deliver competitive returns despite volatility in commodity prices,” Suttles said. “Our business is resilient, sustainable and competitive both within and outside of our industry. Our free cash flow in 2019 continues to grow and will be used to strengthen our balance sheet."
Third quarter capital investments totaled $566 million, and Encana completed the sale of Arkoma Basin and China assets. Pro forma capital investments are expected to total $2.8 billion this year, unchanged from the midpoint of previous guidance.
Total production, excluding divested volumes, exceeded 596,000 boe/d. Third quarter liquids production increased 8% to 329,200 b/d, with oil and condensate output of 237,300 b/d.
The Permian portfolio achieved a record quarterly average of 111,000 boe/d. Encana used a four-rig program focused on cube development, with recent wells in Howard County in West Texas contributing to the outperformance.
The Permian cubes used 10% recycled water leading to lower water costs, while continued drilling efficiencies were realized, resulting in an 11% reduction year/year in cost/lateral foot.
In the Anadarko Basin, where Encana staked its flag last year with the $7.7 billion takeover of Newfield Exploration Co., production totaled 162,000 boe/d, 13% higher year/year. Well costs in Oklahoma’s STACK, aka the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, came in under $6 million with cycle times reduced to 90 days.
From the Montney in Western Canada, quarterly output averaged 210,000 boe/d. Liquids production averaged 54,000 b/d, up 22% from a year ago.
Also within the portfolio, Williston Basin production came in at 105,000 boe/d. In addition, Eagle Ford Shale operations demonstrated “strong well performance,” helping to drive free cash flow. And in the Duvernay formation, a recent two-well pad averaged 750 b/d of condensate per well over the first 150 days.
At the end of September, Encana had hedged through the rest of 2019 175,500 b/d of expected oil and condensate production at an average price of $57.37/bbl. It also has about 864 MMcf/d of remaining gas output for this year hedged at an average price of $2.75/Mcf.
For 2020, Encana already has hedged 119,000/d of expected oil and condensate output at an average of $54.83/bbl, with around 1.04 Bcf/d of gas hedged at $2.65.
Suttles said the rebranding was a “strategic transformation” to tap growing U.S. investment pools such as stock exchange index funds and computer-managed passive accounts. The new U.S. location was not disclosed but it could be Denver, where Suttles lives.
The company has set a target of early 2020 to complete the headquarters relocation, renaming and an equity consolidation that would swap one Ovintiv share for every five of Encana.
The relocation was no surprise in Canada. The news “follows Encana’s earlier decision in November 2018 to move to a ‘headquarter-less model’ with a heavy shift to the U.S.,” said Energy Minister Sonya Savage, an industry veteran.
The name Encana was inspired by a 2002 merger of Calgary industry pillars, Alberta Energy Company (AEC) and PanCanadian Energy. A provincial legislature charter created AEC in 1975 as an oil and gas investment vehicle for Albertans. PanCanadian was born as the resource development arm of the Canadian Pacific Railway, tapping mineral wealth from its 19th century land grants.
Suttles said industry and financial market conditions alone inspired Encana’s U.S. relocation and renaming.
“This is not a political move,” he said. “This is quite simply accessing the capital trends in the marketplace.”
But Western Canadians instantly blamed the switch at least partly on politics, including reelection earlier in October of a Liberal national government with a taste for strict regulation and a declared commitment to energy transition away from fossil fuels.
“I am troubled,” Savage said. “Sadly, I cannot say I am surprised, as Encana has been shifting its efforts to the U.S. for years, in large part due to harmful policies in Canada. I sincerely hope today's news will serve as a wake-up call for leadership in Ottawa.”
Retired Encana CEO Gwyn Morgan, who presided over the AEC-PanCanadian merger, blamed the “destructive policies” of Prime Minister Justin Trudeau, who was recently reelected. “Liberals have left the company with no choice but to shift its asset base and capital program south of the border. Now, its reelection strikes the final blow."
Encana posted 3Q2019 earnings of $149 million (11 cents/share), compared with year-ago profits of $39 million (4 cents). The company also completed repurchasing 196.7 million common shares at an average price of $6.35/share. Investment in the program totaled $1.25 billion.