Encana Corp. delivered strong operational performance in 3Q2011, with North American onshore gas and liquids output up 6% from the year-ago period, the company said Thursday.
The Calgary-based independent earned $120 million in the quarter, down from $606 million in 3Q2010 after being hit by a currency translation loss of $325 million in volatile markets. Encana reports in U.S. dollars. A year ago Encana reported a currency gain of $136 million.
The company generated cash flow of $1.16 million ($1.57/share) versus $1.13 billion ($1.53). Operating earnings rose to $171 million (23 cents/share from $85 million (12 cents).
Encana’s quarterly production growth was led by a 70% increase in the Haynesville Shale, a 13% jump in coalbed methane growth and 16% higher output in the Greater Sierra, which includes the Horn River Shale, where production more than tripled to about 100 MMcfe/d.
The producer drilled 164 wells in the latest quarter, 44 fewer than a year ago, but total output still rose 6% to 3.5 MMcfe/d from 3.3 MMcfe/d. Gas production was up 6% to 3.37 MMcf/d from 3.18 MMcf/d. Natural gas liquids and oil output rose 4% to 24,000 b/d from 23,000 b/d.
Encana CEO Randy Eresman, who has said on several occasions that low gas prices were unsustainable, said the company continued to work on ways to strengthen its financial position.
“Our third quarter production growth of 6% per share puts us in line to achieve our 2011 targeted growth range of 5% to 7% per share,” he said. “We are highly focused on core initiatives that will strengthen our financial capacity and position us for future growth. Through the expanded application of our resource play hub model — highly integrated and optimized production facilities that continually improve efficiencies — we continue to lower our capital and operating cost structures.”
Eresman has said for more than a year that unsustainable low gas prices have forced the company to make adjustments. Encana wants to sell $1-2 billion of its midstream properties in North America, including a bundle of properties in the Denver Julesburg (DJ) Basin and the Piceance Basin of Colorado. In January it unloaded DJ Basin properties for $303 million (see Daily GPI, Jan. 19). And in September it sold some Piceance Basin properties for $590 million (see Daily GPI, Oct. 12; Sept. 8).
Earlier this month Enbridge Inc. agreed to become majority owner of the under-construction Cabin Gas Plant development in the Horn River Basin after making a C$220 million deal with Encana, which operates the development and holds a 52% stake (see Daily GPI, Oct. 10).
Still on the market are Barnett Shale properties in North Texas, assets in portions of the Jean Marie play in northeast British Columbia, and the Carrot Creek assets in Alberta’s Deep Basin. In addition Encana continues to work to secure a joint venture partner for the Cutbank Ridge undeveloped assets in Canada after ending talks in June with a subsidiary of PetroChina International Ltd. (see Daily GPI, June 22).
“The competitive sale of select midstream assets frees up capital for reinvestment in higher-return upstream projects,” said Eresman. “Recent transactions include agreements to sell a portion of our Piceance midstream assets and our interest in the Cabin Gas Plant for a total of about $800 million, and we are well advanced in the sale process for our midstream assets in the Cutbank Ridge area. The sales process for our North Texas Barnett shale assets is also moving ahead.”
Encana has taken a dual approach to growing its liquids production, first by expanding NGL extraction from its liquids-rich gas output. An aggressive grassroots exploration program also is under way to target oil and liquids-heavy gas plays across the company’s land base in North America.
In Alberta’s Deep Basin the company’s extraction projects are targeting an additional 55,000 b/d of NGLs by 2015. Encana’s total liquids production by then would reach about 80,000 b/d; it currently is producing about 25,000 b/d. The first step in this plan, Encana said, is scheduled to ramp up in December with the addition of about 5,000 b/d of NGLs production from expanded facilities at the Musreau, AB, natural gas processing plant (see Daily GPI, Oct. 17a).
The company said it now is drilling about a dozen wells on five prospective liquids-rich and oil plays from Alberta to Mississippi: the Duvernay Shale in Alberta, the Niobrara formation in the DJ and Piceance basins in Colorado, the Collingwood Shale in Michigan and the Tuscaloosa Marine Shale in Mississippi.
“The tremendous operational success we’ve achieved by applying our extensive technical expertise in long-reach horizontal drilling and completions in natural gas reservoirs is highly transferable to growing production from liquids-prone reservoirs,” said Eresman. “We have a well established methodology for extracting value from all our production, developing resource plays from the ground up through a low-cost entry approach and through our relentless focus on lowering our cost structures. Over the next few years we expect to significantly increase liquids production in our portfolio.”
Encana also continues to attract new third-party investments to improve project returns and accelerate development. In July Encana expanded its Horn River farm-out agreement with a Canadian subsidiary of Korea Gas Corp. (KOGAS) at Kiwigana in northeast British Columbia (see Daily GPI, Jan. 18). KOGAS agreed to invest another C$185 million in nearly 20,000 additional acres of the promising Horn River lands.
In the Kiwigana area the first well pad drilling has been completed and, following completion work this winter, first gas production is expected in the spring. And progress continues on the Kitimat liquefied natural gas (LNG) export project, Encana said. The Kitimat LNG engineering study is expected in the new year, and the partners are discussing long-term sales agreements with Pacific Rim customers (see Daily GPI, Oct. 17b; Oct. 5).
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