OilVoice - EnCana Generates 2009 Cash Flow of US$5.0 billion

EnCana Generates 2009 Cash Flow of US$5.0 billion

Thursday, February 11, 2010

EnCana Corporation achieved strong 2009 financial and operating performance during a major economic downturn and a year when benchmark natural gas prices averaged about US$4.00 per thousand cubic feet (Mcf), the lowest level in seven years. On a pro forma basis, which reflects EnCana as if it had completed its recent split transaction prior to 2009, the company generated cash flow of $5.0 billion, or $6.68 per share and operating earnings were $1.8 billion, or $2.35 per share. Fourth quarter pro forma cash flow was $930 million, or $1.24 per share. Pro forma operating earnings were $373 million, or $0.50 per share. Fourth quarter production on a pro forma basis was 2.8 billion cubic feet equivalent per day (Bcfe/d). Pro forma financial results in 2009 were enhanced by EnCana's favourable commodity price hedges, which resulted in realized hedging gains during the year of about $2.3 billion after-tax. Total production in 2009 was 3.0 Bcfe/d, on a pro forma basis.

Consolidated operating earnings in 2009 were $4.65 per share, $1.14 per share in the fourth quarter
EnCana's cash flow for 2009 was $6.8 billion, or $9.02 per share, on a consolidated basis, which includes the financial and operating results of the Cenovus Energy Inc. assets for the first 11 months of 2009. Operating earnings were $3.5 billion, or $4.65 per share and net earnings were $1.9 billion, or $2.48 per share. On a consolidated basis, total production in 2009 was 4.4 Bcfe/d, while natural gas production was 3.6 billion cubic feet per day (Bcf/d). In the fourth quarter of 2009, on a consolidated basis, cash flow was $603 million, or $0.80 per share. Consolidated operating earnings for the quarter were $855 million, or $1.14 per share and net earnings were $636 million, or $0.85 per share. On a consolidated basis, total production for the fourth quarter of 2009 was 3.8 Bcfe/d.

Pro forma proved reserves additions replaced 169 percent of 2009 production
On a pro forma basis, EnCana replaced 169 percent of its 2009 production at an average finding and development cost of $1.62 per thousand cubic feet of gas equivalent (Mcfe), while total reserves increased 3 percent to 12.8 trillion cubic feet of gas equivalent (Tcfe). These pro forma reserves metrics are 'before SEC price revisions' and the methodology employed is comparable with that of several of EnCana's U.S. natural gas peer companies.

Strong performance in a challenging year of transformative change
'In a year of significant and widespread economic crisis, our company thrived at the same time that it completed a major corporate transformation into two highly-focused energy producers - North America's newest and highly promising integrated oil producer Cenovus Energy Inc. and EnCana, a pure-play natural gas company. The new EnCana is now very well positioned to achieve even greater success through significant, low-cost organic natural gas production growth for many years ahead,' said Randy Eresman, President & Chief Executive Officer.

'In 2009, we met our pro forma cash flow and operating cost expectations. During a year of substantially reduced drilling activity, we grew our total proved reserves by 3 percent at an attractive finding and development cost. We delivered on our key business objectives while maintaining financial strength, expanding our portfolio of unconventional natural gas opportunities, divesting of non-core properties and continuing to pay a stable dividend to shareholders. EnCana's 2009 performance again validated the strength of our resource play business model,' Eresman said.

Well positioned to thrive by achieving strong growth and attractive margins in a competitive price world
'As we look ahead, we remain highly focused on achieving production growth that targets an average of 10 per cent a year over the long term, and at a cost that is among the lowest in industry. While we recognize that the abundance of North American natural gas likely heralds a future of lower and less volatile natural gas prices, our operating practices, leading technologies and increasing efficiencies position us very well to continue to capture strong margins and thrive in a competitive price environment,' Eresman said.

Large and diverse natural gas plays
'We are a leading North American producer of unconventional natural gas with a huge land position in four of the continent's six major natural gas shale plays. We have a strong balance sheet and are extremely well positioned financially to capitalize on attractive investment opportunities that may emerge. Our commodity price risk management program is aimed at continuing to underpin our capital investments and we are maintaining our focus on applying advanced technology to increase operational efficiencies across all of our projects. Our 2009 performance demonstrated our ability to create value for shareholders throughout the economic cycle and the resilience of EnCana's long-term strategy - a historically successful approach that we plan to apply as we move forward,' Eresman said.

EnCana 2009 Highlights - Pro forma
Per share amounts for pro forma and consolidated cash flow and earnings are on a diluted basis. EnCana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report production, sales and reserves on an after-royalties basis. The company's financial statements are prepared in accordance with Canadian generally
accepted accounting principles (GAAP).

Financial
• Cash flow of $5.0 billion, or $6.68 per share
• Operating earnings of $1.8 billion, or $2.35 per share
• Capital investment, excluding acquisitions and divestitures, of $3.8 billion
• Free cash flow of $1.3 billion

Operating
• Total production of 3.0 Bcfe/d
• Total natural gas production of 2.8 Bcf/d
• Oil and natural gas liquids (NGLs) production of about 27,000 barrels per day (bbls/d)
• Operating and administrative costs of $1.11 per Mcfe

• Proved reserves of 12.8 Tcfe
• Added 1.9 Tcfe of proved reserves, compared to production of 1.1 Tcfe, for a production replacement of 169 percent
• Finding and development (F&D) costs were $1.62 per Mcfe
• Three-year (2007-2009) F&D costs averaged $1.92 per Mcfe
• Proved reserves life index of approximately 12 years

Strategic developments
• Completed corporate reorganization to split into two independent publicly traded energy companies: EnCana Corporation, a pure play natural gas company and Cenovus Energy Inc., an integrated oil company
• Divested non-core conventional oil and natural gas assets in North America for approximately $1.1 billion on a pro forma basis, $1.0 billion of which was in the Canadian Division (formerly the Canadian Foothills Division); acquired about $260 million of assets for net divestitures of about $815 million

Reserves repacement
In 2009, EnCana's total proved reserves additions replaced 169 percent of its production at an average finding and development cost of $1.62 per Mcfe. Total proved reserves increased 3 percent to 12.8 Tcfe compared to 2008. These estimates are on a pro forma basis, which reflects EnCana as if it had existed as a pure-play natural gas company for all of 2009 and previous years and are before any SEC price revisions.

Sale non-core properties for approximately $1.1 billion
In 2009, EnCana had divestitures of approximately $1.1 billion, resulting in about $815 million of divestitures net of acquisitions, on a pro forma basis. In the Canadian Division, EnCana divested about $1.0 billion of non-core conventional oil and natural gas assets, including the August 2009 sale to Bonavista Energy Trust of about 409,000 net acres of noncore natural gas and oil producing properties for approximately $632 million. The transaction included property known as the Hoadley trend, which covers an expansive area in west-central Alberta. EnCana's USA Division divested about $73 million of non-core assets, while another $103 million in divestitures were related to the former Canadian Plains and Integrated Oil divisions. Included in those divestitures is EnCana's sale on November 3, 2009 of the shares of Senlac Oil Ltd., which owned west-central Saskatchewan heavy oil operations, for approximately $83 million.

Financial
EnCana has a strong balance sheet, with 100 percent of outstanding debt composed of long-term, fixed-rate debt with an average remaining term of more than 13 years. The company has upcoming debt maturities of $200 million in 2010 and $500 million in 2011. At December 31, 2009, EnCana had $4.9 billion in unused committed credit facilities. With EnCana's bank facilities undrawn and $4.3 billion of cash on the balance sheet at year-end 2009, the company's liquidity position is extremely strong. EnCana manages its financial strategy to achieve a strong investment grade credit rating. At December 31, 2009 on a pro forma basis, the company's debt to capitalization ratio was 32 percent and debt to adjusted EBITDA, on a trailing 12-month basis, was 2.1 times.

In 2009, EnCana invested $3.8 billion in capital, on a pro forma basis, primarily focused on continued development of EnCana's North American key resource plays.