Encana Corp. increased its onshore natural gas-weighted production in 3Q2010, but sustained low gas prices led the producer to cut its output guidance for the year.

“North America’s ongoing oversupply of natural gas production has driven prices for the near term to levels that we believe are unsustainably low,” said CEO Randy Eresman. “As such, we are slowing the near-term growth rate of our resource plays. For the longer term, we continue to build the underlying productive capacity of our enormous resource portfolio for future years’ growth. Our low-cost assets are capable of achieving our stated objective: doubling production per share over five years from 2009 levels. However, if these low prices persist, we plan to adjust our growth rate to align with our capacity to generate cash flow.”

Encana’s quarterly gas production jumped 17% year/year (y/y) to 3.2 Bcf/d; total output was up 15% to 3.3 Bcfe/d. The USA Division’s quarterly production was led by strong growth in the Haynesville Shale, where output jumped to 335 MMcfe/d from 83 MMcfe/d a year ago. In the Piceance Basin of Colorado production grew nearly 30% y/y. Encana’s Canadian Division’s production was up about 14% to 1.5 Bcfe/d, mostly because of successful drilling programs at Bighorn and Cutbank Ridge, which grew y/y production by about 52% and 37% respectively.

In the last half of 2009 Encana curtailed production volumes in some of its resource plays because of low gas prices. Most of the curtailed production was back on stream in the first three months of this year, which resulted in an “atypical production profile” for some of the resource plays over the past 12 months, the company said.

Canadian Division capital spending in 3Q2010 totaled $529 million, most of which was focused on continuing steady growth in production across the division. Capital spending in the USA Division was $681 million, with most of the money focused on the Haynesville Shale, with about $240 million of that directed at retaining leases.

“Our company’s solid financial and operating results once again demonstrate that Encana’s significant inventory of natural gas resources is capable of supporting substantial production growth,” said the CEO. “Our strong growth in both our Canadian and USA divisions aligns with our long-term strategy of doubling natural gas production per share over the next five years…

“During this period of continued low prices, we remain focused on capital discipline and long-term value creation for every Encana share. We will not pursue growth at any cost. Capacity constraints for completion services, particularly in the USA Division’s Haynesville play in Louisiana and East Texas, have hindered the addition of some of the production volumes we had previously forecast in the last half of this year.”

The “high demand for hydraulic fracturing equipment and services threatens to accelerate the modest inflation we have seen this year,” Eresman explained. “Across our organization we are committed to minimizing or eliminating cost increases through improved operational efficiencies and technology innovation. As a result, we are developing strategies to bring on new fit-for-purpose completion equipment, patterned after a highly successful program that saw our company contract for the construction and supply of fit-for-purpose drilling rigs — equipment that has improved our drilling and cost efficiency.”

Because of the completion delays, Encana expects to defer about $200 million in capital spending to 2011 from this year, which would set spending in 2010 at $4.8 billion from $5 billion. Production guidance also was trimmed to 3.315 Bcfe/d, which is down by 50 MMcfe/d from a previous forecast but 12% higher than in 2009. The top end of 2010 projected cash flow was narrowed by 30 cents/share to $5.95-6.20/share, compared with an earlier forecast of $5.95-6.50.

Net earnings in 3Q2010 reached $569 million (77 cents/share), with operations netting 13 cents. Cash flow in the latest quarter totaled $1.1 billion ($1.54/share). Price hedging contributed $211 million in realized after-tax gains (39 cents/share).

In the year-ago period, before Encana separated most of its oil operations into newly formed Cenovus Energy Inc., net income was $25 million (3 cents/share). Without the contributions from Cenovus, Encana’s operating earnings in 3Q2009 totaled 50 cents/share with cash flow of $1.70/share.

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