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EnCana Tops Estimates, Boosts Production 6%, Adds Two Key Resource Plays

May 1, 2006
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EnCana Corp. crushed analysts' first quarter earnings estimates and said it's on track to meet production growth targets, producing 3,343 MMcfe/d of natural gas during the quarter, a 6% increase from the same period last year.

The company reported net earnings from continuing operations of $1.70 per share, or $1.47 billion, compared to analysts' estimates of 96 cents/share and compared to a $162 million net loss (minus 18 cents/share) from continuing operations in 1Q2005. EnCana also increased its quarterly dividend 33% to 10 cents per share.

"EnCana's North American natural gas and oil sales continue to grow at a steady pace, increasing 6% in the past year," said CEO Randy Eresman. "We are on track to achieve 2006 guidance, growing North American sales by about 7% from 2005. Despite record industry field activity in the first quarter, we successfully completed our winter program drilling 1,282 wells - about 30% of our plan for the year.

"With about $3.5 billion of sales proceeds from completed and pending midstream and international asset sales in 2006, EnCana continues to focus on North American unconventional resource plays."

The company placed two new resource plays into its portfolio of core unconventional assets. EnCana's threshold for key resource play status is a property containing estimated recoverable resources in excess of 1 Tcfe of gas and an expected capability of reaching daily production of more than 200 MMcfe.

"EnCana's productive capacity continues to grow with the addition of two new key resource plays -- a natural gas play at Bighorn in west central Alberta and the Christina Lake oilsands development in northeast Alberta, which has the potential to be our largest in-situ project," said Eresman. "We have been assembling the land and evaluating the potential of Bighorn and Christina Lake for the past number of years, and we believe that each play now holds sufficient identified resources to be a significant contributor to long-term value creation."

Bighorn covers about 448,000 net acres. First quarter production from this deep-basin play was 72 MMcf/d, up from an average of 55 MMcf/d in 2005, and the company expects production to rise to 80-90 MMcf/d this year. With about eight rigs working year round, Bighorn produces from Cretaceous-aged reservoirs within Western Canada's deep basin. EnCana estimates original gas in place of 15-35 Bcf per square mile, with expected drilling density of one well per 160 or 320 acres. The average well is expected to recover between 2 Bcf and 5 Bcf of gas, with initial production rates averaging 2-5 MMcf/d. The company estimates that the Bighorn resource play has an unbooked resource potential of about 2 Tcf of gas.

Located about 75 miles south of Fort McMurray, Christina Lake has the potential to be EnCana's largest oilsands project. Pilot project work over the past five years has taken steam-assisted gravity drainage production to a level that is expected to average 6,000 bbl/d of bitumen in 2006. A current expansion is expected to take production to about 18,000 bbl/d in 2008 and the project is targeted to grow to more than 250,000 bbl/d over the next decade. Christina Lake is estimated to have an unbooked resource potential of about 1.8 billion bbl of oil.

EnCana said its first quarter 2006 oil and gas production from key North American resource plays increased 17% compared to the first quarter of 2005, driven mainly by increases in gas production on coalbed methane projects in central and southern Alberta, Cutbank Ridge in northeastern British Columbia and the Barnett Shale in the Fort Worth basin. Bighorn in comparison has grown by close to 30% in the past year.

In 2005, EnCana's proved reserves from continuing operations grew by 20% to 17.7 Tcfe and as of Dec. 31, 2005, the company estimated that its unbooked resource potential increased by 60% to about 39 Tcfe.

"Our confidence in our long term growth potential continues to be underpinned by the size and quality of our undeveloped reserves and our unbooked resource potential," Eresman said. "Associated with this potential, EnCana's estimated drilling inventory has increased by 16% to about 43,000 well locations. We expect to develop our unbooked resource potential at a cost of less than $2 per thousand cubic feet for natural gas and less than $5 per barrel for oilsands."

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