While scaling back its Deep Panuke exploration plans and selling its stake in the Syncrude Canada oil sands project, EnCana Corp. remains “well-positioned” to produce 3 Bcf/d to 3.1 Bcf/d in North America — without acquisitions, the company’s CEO said last week.

EnCana, which still expects to grow its annual sales by 10% a year for the next several years, also will meet its oil and natural gas liquids output goal of 240,000 bbl/d to 280,000 bbl/d said CEO Gwyn Morgan last week.

However, the CEO downplayed speculation that the largest North American independent was ready to shop around for more assets, even though it will have about C$3.4 billion (US$2.3 billion) from divestitures in the past few months. “We have no need for acquisitions, given our strong internal growth,” he told analysts during a conference call. “I don’t consider that we have a war chest; I consider that we just happen to have the strongest balance sheet in the sector.”

Morgan said that the company plans to use its extra cash to buy back stock and to fund a portion of its C$5 billion capital spending plan this year. He hinted that acquisitions might be considered in its core operating areas, which are centered in Canada, the U.S. Rocky Mountains, the North Sea and Ecuador.

Morgan also dismissed rumors that EnCana might abandon its C$1.1 billion (US$700 million) natural gas exploration project in the Deep Panuke off the coast of Nova Scotia. Although reserves appear to be dwindling from the once prolific find, he said EnCana would not pull out, merely postpone its work there. Earlier this month, EnCana announced it would postpone development of its exploration there for at least a year, citing low returns and high transport costs (see NGI, Feb. 17).

EnCana, the largest independent producer in North America, reported last year that annual sales increased 12% to 723,000 boe/d, while natural gas sales surpassed 3 Bcf/d in the fourth quarter alone. Daily pro forma oil and gas sales exceeded the midpoint of EnCana’s ’02 targets, with gas sales of 2.8 Bcf/d, up 16% per share for the year, while natural gas liquid (NGL) sales were nearly 263,000 bbl/d, up 5% over 2001.

Conventional operating and administrative costs on a pro forma basis in 2002 were approximately C$4.77/boe. The references to 2001 production and sales and 2002 production, sales and financial information were given on a pro forma basis as if the merger of PanCanadian Energy Corp. and Alberta Energy Co. had occurred at the beginning of the respective periods. All $ figures are Canadian unless otherwise stated.

Morgan told analysts that last year was one of “remarkable achievement” for the company. He noted that just over a year ago, the company set out to create a best-in-class independent, adding, “we have made tremendous progress towards that goal.” EnCana, he said, had replaced production by 190% on a proved basis and had increased total conventional proved reserves by 10%.

In the fourth quarter of 2002, EnCana earned C$429 million (C$.88 cents) per common diluted share. Cash flow was C$1.472 billion (C$3.03). Revenues, net of royalties and production taxes, were C$3.392 billion, while capital investment, including acquisitions and dispositions, was C$1.223 billion. Fourth quarter natural gas sales averaged 3.04 Bcf/d, up 21% over pro forma results in 4Q01.

EnCana withdrew an average of 149 MMcf/d from storage to capitalize on strong seasonal prices. Oil and NGLs sales averaged 271,000 bbl/d, up about 8% compared to 4Q01. Conventional operating plus administrative costs were approximately C$4.93/boe in the quarter. EnCana drilled 905 net wells in the fourth quarter.

“With a successful first year in the books, we believe EnCana is poised to continue to grow annual sales by an average of 10% per common share for several years ahead,” said Morgan. “We intend to manage our capital investment to target the highest returns and profitability from our premium quality assets in North America and in select offshore and international locations. Add to that advantage the continent’s largest independent network of natural gas storage, and you have a powerful enterprise able to turn prospects into production [and] reserves into revenue.”

In 2002, EnCana added 473 MMboe of conventional proved reserves, equivalent to replacing 190% of last year’s production on a proved basis. The company’s proved reserve replacement cost was C$9.60/boe (US$8.20 after royalties). The company drilled 3,019 net wells in 2002. The inaugural evaluation of EnCana’s total conventional reserve base (excluding Syncrude) resulted in a year-end ’02 balance of about 2.5 billion boe proved reserves before royalties, estimated using constant prices and costs. Discoveries, extensions to existing pools and net acquisitions were approximately 552 MMboe proved reserves. Negative net revisions of approximately 79 MMboe of conventional proved reserves were recorded, with most in the southern and central plains regions of Alberta following an independent assessment.

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