With strong natural gas production pulled up in its ever-larger U.S. Rockies assets, North America’s leading independent, EnCana Corp., said it would meet its sales growth targets this year and in 2003, after improving its quarterly oil and natural gas daily sales by 9% and generating more than C$1 billion in cash flow.
Using pro forma data (as if the merger of PanCanadian Energy Corp. and Alberta Energy Co. Ltd., which created EnCana, had occurred at the beginning of 3Q01), the Calgary-based independent is forecasting that 2002 daily sales volumes will grow 10% from a year ago, with gas sales of between 2,715-2,785 MMcf and crude sales between 245,000-264,000 bbl, for total sales ranging between 697,000-728,000 boe/d. For 2003, EnCana has forecast its sales volumes will increase to between 788,000-830,000 boe/d.
For the third quarter, EnCana earned C$349 million, or C72 cents a share, excluding an unrealized after-tax foreign exchange loss of C$145 million, or C30 cents, on EnCana’s U.S. dollar denominated debt. The loss, which had no impact on cash flow, resulted from the Canadian dollar depreciating relative to the U.S. dollar during the quarter. Including the loss, EnCana earned C$204 million, or C42 cents a share for the quarter.
“Our third-quarter results confirm that we are right on track to accomplish our 2002 sales growth targets and are well positioned to achieve…2003 sales growth targets,” said CEO Gwyn Morgan. “EnCana has once again produced profitable growth from its high quality asset base, a solid inventory of identifiable growth opportunities, strong technical expertise and cost control. Our increased production base of more than 718,000 boe/d, combined with higher than expected oil prices, yielded solid results.” The company expects to further capitalize in the fourth quarter from winter seasonal gains.
Natural gas production averaged 2.8 Bcf/d, up 10% over pro forma 3Q01. During the quarter, 80 MMcf/d was injected into storage, yielding quarterly sales of 2.7 Bcf/d. Oil and natural gas liquids sales averaged 270,225 bbl/d, up about 6%, compared to pro forma 3Q01. Conventional operating plus administrative costs were approximately C$4.91/boe.
The average realized gas price was C$3.56/Mcf for the quarter, positively impacted by having nearly 1.4 Bcf/d hedged. Fixed price hedges in the quarter included 875 MMcf/d at an effective AECO price of C$4.24/Mcf; 333 MMcf/d at an effective Opal, WY price of US$2.61/Mcf; and 205 MMcf/d at a Nymex-related price of US$3.33/Mcf. To date, EnCana has approximately 26 Bcf in its North American storage facilities.
Daily production growth was led by increases in the U.S. Rockies and northeast British Columbia. The Onshore North America division drilled 559 net wells during the third quarter, and the company showed “exceptional” growth in the Rockies after purchasing another interest in the Jonah gas field located in southwest Wyoming. With the additional 600 Bcfe of established natural gas and associated natural gas liquids reserves, EnCana now owns about 75% of the Jonah field.
“Our move into the U.S. Rockies, started less than 30 months ago, continues to exceed our expectations for growth and potential,” said Randy Eresman, president of EnCana’s Onshore North America division. “This is currently our highest growth region and we have clearly demonstrated our ability to add value to acquisitions with drill bit success. During the third quarter, production from the region averaged 550 MMcf/d, a remarkable achievement in such a short time frame.”
To mitigate the impact of gas transportation limitations from the U.S. Rockies to markets, EnCana established a series of fixed-price differentials from the Nymex index at an average of US$0.47/Mcf on effectively all of its U.S. Rockies winter production, as well as approximately 400 MMcf/d from April 2003 to October 2007.
In other news, EnCana has begun developing Canada’s first commercial coalbed methane (CBM) project, and has drilled the first of 32 anticipated net wells on land east of Calgary. This demonstration-scale project is designed to verify the commercial potential of natural gas production from coal seams located under Canada’s prairies. During the pilot project, EnCana drilled about 76 net wells, and 14 wells currently are producing gas, averaging 30 Mcf-250 Mcf/d. Other CBM projects are being evaluated in the Elk Valley of southeast BC, and the Grizzly Valley in northeast BC.
In its much-anticipated Deep Panuke gas project offshore Nova Scotia, EnCana noted that the National Energy Board (NEB) and the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB) are proceeding with a full review of the development plan. “Recent plans by both regulatory boards to hold a single hearing for review are encouraging,” the company said. Regulatory hearings for Deep Panuke are scheduled in the first quarter of 2003, with a decision expected by mid-year.
Although EnCana had set a 2005 target start-up date for Deep Panuke, “given a longer than anticipated Canadian Environmental Assessment Act comprehensive study report (CSR) process, it is unlikely that the project will be operational by that time. The CSR has been filed with the federal minister of the environment and EnCana is awaiting a firm date for the hearing. The company is also examining newly acquired seismic and related exploration opportunities in the vicinity of Deep Panuke that could enhance project economics,” but management did not elaborate. “Once the NEB and CNSOPB have ruled on the Deep Panuke application, EnCana will review the regulatory decisions, including all conditions for approval, and make a decision on project sanction.”
The company continues to pare down its portfolio, said Morgan, and has made “good progress” on a planned sale in two major oil pipelines, 100%-owned Express Pipeline System and the 70%-owned Cold Lake Pipeline System. The sales are expected to be completed by year-end, Morgan added. As of early November, EnCana has sold about C$525 million before tax of non-core upstream and midstream production assets. Merger integration also remains on track.
At Sept. 30, 2002, the company’s debt-to-capitalization ratio was 39:61 (all preferred securities included as debt). Third-quarter core capital investment and acquisitions were C$1.507 billion. Dispositions were C$133 million, resulting in net capital investment of C$1.374 billion.
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