North American natural gas heavyweight Encana Corp. on Wednesday reported a $1.24 billion net loss in 3Q2012, primarily from the impact of low natural gas prices.

Encana recorded a $1.19 billion after-tax impairment charge against net earnings in 3Q2012, “resulting primarily from the impact of the decline in 12-month average trailing natural gas prices,” said management. “As a result, reported net earnings for the third quarter were a loss of $1.24 billion.”

Operating earnings totaled $263 million (36 cents/share), down from $389 million (53 cents) a year ago. Cash flow declined to $913 million ($1.24/share) from $1.2 billion ($1.60) in 3Q2011.

Average natural gas production volumes declined to 2.9 Bcf/d, which was about 460 MMcf/d lower than in 3Q2011, which Encana attributed to voluntary capacity reductions, divestitures and natural declines. In the U.S. division, the lower gas output was partially offset by a successful drilling program in the Piceance Basin, while in Canada, solid drilling programs in the Bighorn and Cutbank Ridge areas helped to partially offset declines there.

“During the first half of this year, when natural gas prices were at their lowest in the last 10 years, Encana shut in or curtailed approximately 500 MMcf/d of production,” the management team noted. “Beginning in August, Encana began bringing the volumes back online with the goal that all shut-in and curtailed volumes would be back on-stream prior to winter. With production volumes now largely restored, the company reaffirms its 2012 production guidance of 3.0 Bcf/d.”

The producer, which like many gas-weighted operators is expanding its oil and natural gas liquids (NGL) development, saw liquids volumes average more than 30,000 b/d in the latest period, an increase of almost 6,000 b/d from a year ago.

“The strong quarter-over-quarter growth in our oil and NGLs volumes is the result of a focused effort by our teams to accelerate the development of our oil and liquids-rich plays,” said CEO Randy Eresman. “We expect to see this trend continue as we progress our plans to diversify our commodity portfolio and achieve a more balanced stream of future cash flows.”

To date, Encana has increased its natural gas hedge position to about 1.2 Bcf/d for 2013 at an average price of $4.51/Mcf.

“Our increased risk management position helps to provide additional certainty for our cash flow generation and capital programs for 2013,” said Eresman.

“There are a number of positive signs for Encana as we look toward 2013. In addition to growth in oil and NGLs production and the recent recovery in natural gas prices, we are optimistic as discussions progress on our joint venture and divestiture opportunities. Looking longer term, with a diversified commodity mix and our proven track record as a low cost producer, we are well positioned to achieve sustainable growth across our portfolio of assets.”

In the U.S. division, Encana reported “encouraging results” in the Denver-Julesburg Niobrara play. “With plans to drill 18 wells this year, there are currently two wells on production and another nine wells either completed or waiting on completions in this area,” the company reported.

Twelve wells are planned in the Eaglebine formation, which is an extension of the Eagle Ford Shale in Texas. “Promising early results” were reported from six operated wells on production, “with some of the wells exceeding expectations.” Two additional wells are waiting to be completed.

In the San Juan Basin, Encana drilled four wells this year through 3Q2012, with a fifth now being drilled. A total of eight wells are planned in the basin this year. The company also is running a two-rig program in the Mississippian Lime and is producing from three wells. Seven wells to date have been drilled in the so-called “Miss Lime” play this year, with a total of 16 total wells targeted by the end of the year.

Encana also reported progress in delineating its leasehold in the Tuscaloosa Marine Shale, where it now has four operated producing wells and two wells awaiting completion. Eight wells are planned by the end of 2012. Two drilling rigs are working the shale, with Encana focused on reducing drilling costs.

In Canada, Encana has drilled 13 oil wells through 3Q2012 in Clearwater, with plans in place to drill another 20 wells this year. The Duvernay Shale, where Encana is the biggest leaseholder with close to 400,000 net acres, now has two rigs drilling with 12 wells scheduled for 2012. “Condensate yields from these early wells are very promising,” said the company.

And in Canada’s Peace River Arch, one rig now is working. Seven wells were drilled in the latest period with a total of 20 drilled to date, out of 27 planned for the year.

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