EnCana Corporation continued its strong performance in the first quarter with increases in cash flow and operating earnings driven by increased natural gas and liquids production and higher commodity prices.
"EnCana achieved outstanding operational and financial results during the first quarter putting the company well on track to achieve its 2008 forecast. These results continue to reinforce the strong value-generating capability of our sustainable, low-risk resource play strategy. EnCana has assembled an extensive portfolio of unconventional assets and our teams have a demonstrated track record of disciplined execution excellence while maintaining a focus on cost management," said Randy Eresman, EnCana's President & Chief Executive Officer.
"Our resource plays continue to deliver excellent performance, driven by our industry-leading positions in plays such as the Deep Bossier formation of East Texas, the emerging Montney formation of Cutbank Ridge in northeast British Columbia and Jonah in Wyoming. In addition, EnCana teams have recently achieved some promising exploration results in a number of North American shale plays, such as the Horn River in northeast B.C. We have built sizeable land positions in various emerging shale plays and believe that over time they have the potential to add significant depth to our very strong portfolio of natural gas assets across the North American unconventional fairway. We are clearly well positioned for the future."
First Quarter 2008 Highlights (all year-over-year comparisons are to the first quarter of 2007)
Financial
• Cash flow increased 41 percent to $3.17 per share, or $2.4 billion
• Operating earnings were up 28 percent to $1.39 per share, or $1.0 billion
• Net earnings of 12 cents per share were down 81 percent to $93 million, primarily due to an unrealized mark-to-market loss on risk management activities of $737 million after-tax
• Operating cash flow generated from the integrated oil business totalled $170 million, comprised of $77 million from the upstream operations, a 64 percent increase due to strong field prices, and $93 million from the downstream business, a decrease of 15 percent, due to weaker refining margins
• Capital investment was in line with guidance. It was up 25 percent to $1.85 billion, primarily due to drilling a higher percentage of deep and longer reach wells
• Free cash flow increased $271 million to $540 million
• Realized natural gas prices were up 11 percent to $8.02 per thousand cubic feet (Mcf) and realized liquids prices increased 63 percent to $69.59 per barrel (bbl). These prices include financial hedges
• EnCana purchased 4.6 million shares at an average share price of $66.80 under the Normal Course Issuer Bid, for a total cost of $311 million
• Capital investment, operating expenses, administrative expenses and depreciation, depletion and amortization (DD&A) expense increased as a result of a 17 percent increase in the average value of the Canadian dollar versus the U.S. dollar
• Quarterly dividend doubled to 40 cents per share
Operating - Upstream
• Key resource play production was up 17 percent, with an 18 percent increase in natural gas production and oil production up 10 percent
• Total natural gas production increased 10 percent to 3.7 billion cubic feet per day (Bcf/d), up 14 percent per share
• Oil and natural gas liquids (NGLs) production increased 5 percent to 137,000 barrels per day (bbls/d), up 9 percent per share
• Integrated oil production grew 26 percent to 29,400 bbls/d at Foster Creek and Christina Lake
• Operating and administrative costs of $1.53 per thousand cubic feet equivalent (Mcfe), up 28 percent primarily due to higher long-term incentive costs as a result of a higher share price, as well as an appreciation of the value of the Canadian dollar compared to the U.S. dollar
Operating - Downstream
• Refined products averaged 435,000 bbls/d (217,500 bbls/d net to EnCana), down 5 percent due to a scheduled turnaround at the Wood River refinery in March, 2008
• Refinery crude utilization of 90 percent or 408,000 bbls/d crude throughput (204,000 bbls/d net to EnCana), down 6 percent primarily due to the Wood River turnaround
Natural gas production on track with 2008 forecast
Natural gas production increased 10 percent in the first quarter to 3.7 Bcf/d, strongly positioning EnCana to achieve full-year guidance of 3.8 Bcf/d. Gas production in the U.S. increased 27 percent, benefiting from incremental volumes from the Deep Bossier acquisition - which doubled EnCana's interest to 100 percent - and drilling programs in the East Texas, Jonah and Piceance resource plays. Production volumes in Canada remained relatively unchanged with increases in coalbed methane (CBM), Cutbank Ridge, Bighorn and Greater Sierra, offset by natural declines from Shallow Gas and conventional properties.
Integrated oil benefits from production increases and higher oil prices
The integrated oil business generated $170 million in operating cash flow, up from $161 million from the same quarter in 2007. The upstream business benefited from an average realized heavy oil price of $59.67 per bbl, up 79 percent from $33.28 per bbl. Operating cash flow from the downstream business was impacted by weaker refining margins. The Chicago 3-2-1 crack spread of $7.69 per bbl was down 40 percent from $12.90 per bbl. First quarter oil production at Foster Creek and Christina Lake was up 26 percent to 29,400 bbls/d (net to EnCana) from the same period last year. The weaker refining margins were offset by the higher upstream realized pricing, which highlights the benefit of the company's integration strategy.
Weyburn oil field becomes key resource play
EnCana has designated the Weyburn oil field in Saskatchewan, one of the largest oil fields in Canada, a key resource play. In addition to being a prolific oil field that has been producing for more than 50 years, Weyburn's enhanced oil recovery project is playing an important role in helping research underground storage of carbon dioxide (CO2).
"This Weyburn oil field has caught the attention of the world as the largest operating CO2 sequestration project. It is one of the most visited and most studied reservoirs anywhere, so much so that it was recently visited by Canadian Prime Minister Stephen Harper. It is a great example of a business and a technologically-driven solution that improves oil recovery while permanently storing CO2, a greenhouse gas," Eresman said.