- Drill bit additions exceed 200% of production; Net earnings per share down 23 percent
- Quarterly dividend doubled to 40 cents per share
EnCana Corporation achieved strong increases in 2007 cash flow and operating earnings during a year of solid growth in natural gas and oil production. Financial results were enhanced by EnCana's favourable gas price hedges, which offset weaker gas prices, and excellent performance from the company's downstream segment of the integrated oil business. EnCana also achieved very strong proved reserves additions at competitive costs.
"EnCana delivered tremendous operational and financial performance in 2007, a direct result of our sharpened focus on North American unconventional natural gas and integrated oil resource plays. The sustainable value creation capacity of our resource play strategy is becoming increasingly evident. With strong production growth of 11 percent per share and successful price hedges that delivered a $1 billion benefit to 2007 cash flow, our company's cash flow, operating earnings and free cash flow all increased substantially in a year when our industry faced many challenges. In 2007, production from our key natural gas resource plays grew 14 percent, while production from our integrated oil projects increased 25 percent. Our newly established refining business also delivered great results, achieving twice the cash flow we expected during its inaugural year. Completing the year's success story, proved reserves additions were also substantial, replacing more than two times the amount of oil and gas we produced. Most importantly, these reserves additions were achieved at a highly-competitive finding and development cost of $1.65 per thousand cubic feet equivalent," said Randy Eresman, EnCana's President & Chief Executive Officer.
"EnCana's energy resources lie beneath its more than 25 million net acres of land in North America, largely in the heart of the unconventional fairway. Our low-risk, long-life resource play assets hold the potential to deliver strong shareholder value creation for many years ahead. As a reflection of the company's confidence in the sustainability of its business model, EnCana's board of directors has approved a doubling of our quarterly dividend to 40 cents per share," Eresman said.
IMPORTANT NOTE: Effective January 2, 2007, EnCana established an integrated oil business with ConocoPhillips, which resulted in EnCana contributing its interests in Foster Creek and Christina Lake into an upstream partnership owned 50-50 by the two companies. Unless otherwise noted in this news release, EnCana's proved reserves and production in 2007 are reported on a post integrated oil basis. Production and wells drilled from 2006 have also been adjusted on a pro forma basis to reflect the integrated oil transaction. Per share amounts for cash flow and earnings are on a diluted basis. EnCana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report production, sales and reserves on an after-royalties basis. The company's financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP).
Financial - US$
- Cash flow per share increased 29 percent to $11.06, or $8.5 billion
- Operating earnings per share were up 37 percent to $5.36, or $4.1 billion
- Net earnings per share were down 23 percent to $5.18, or $4.0 billion, primarily due to the after-tax change in the unrealized mark-to-market impact of EnCana's financial hedges
- Operating cash flow from the integrated oil business was $1.3 billion in 2007 compared to $276 million in 2006, including $1.1 billion of operating cash flow generated from the U.S. refineries
- Total capital investment was down 4 percent to $6.0 billion
- Generated $2.4 billion of free cash flow, up 171 percent
- Purchased 38.9 million EnCana shares at an average price of $52.05 under the Normal Course Issuer Bid, for a total cost of $2.0 billion
- Reduced shares outstanding at year-end by 4 percent, net of share option exercises, to a year-end total of 750.2 million
- Doubled quarterly dividend in March 2007 to 20 cents per share, which amounts to 80 cents per share on an annual basis
- At year end, net debt-to-adjusted-EBITDA was 1.2 times and net debt-to-capitalization was 34 percent
Operating - Upstream
- Natural gas production increased 6 percent to 3.6 billion cubic feet per day (Bcf/d), up 15 percent per share
- Increased production from natural gas key resource plays by 14 percent
- Oil and natural gas liquids (NGLs) production decreased 9 percent to about 134,000 barrels per day (bbls/d), or down about 2 percent per share, primarily due to the sale of EnCana's Ecuador assets in the first quarter of 2006
- Integrated oil production grew 25 percent to 26,814 bbls/d at Foster Creek and Christina Lake
- Operating and administrative costs of $1.17 per thousand cubic feet equivalent (Mcfe)
Operating - Downstream
- Refined products averaged 457,000 bbls/d (228,500 bbls/d net to EnCana)
- Refinery crude utilization of 96 percent or 432,000 bbls/d crude throughput (216,000 bbls/d net to EnCana)
Reserves
- Total proved reserves increased 12 percent to 18.9 trillion cubic feet equivalent (Tcfe)
- Added 3.6 Tcfe of proved reserves, compared to production of 1.6 Tcfe, for a production replacement of 227 percent
- Proved natural gas reserves increased 7 percent to 13.3 trillion cubic feet (Tcf)
- Proved oil and NGLs reserves increased 26 percent to 927 million barrels (MMbbls)
- Proved reserves additions included approximately 2.2 Tcf of natural gas reserves, led by the Cutbank Ridge, Jonah and Piceance resource plays, and 241 million bbls of oil and NGLs, primarily from the Foster Creek and Christina Lake key resource plays
- Finding and Development (F&D) costs were $1.65 per Mcfe
- Three-year (2005-2007) F&D costs averaged $1.59 per Mcfe
- F&D costs for natural gas and associated liquids were approximately $2.40 per Mcfe
- Proved reserves life index of 12 years
2007 strategic results
- Completed first full year of integrated oil business with ConocoPhillips composed of two 50-50 entities - one upstream and one downstream - which became effective January 2, 2007
- Acquired the remaining 50 percent interest in the Deep Bossier natural gas play in East Texas for $2.55 billion, before closing adjustments
- Approved the development of the Deep Panuke natural gas project offshore Nova Scotia
- Completed the sale of interests in Chad for $208 million, assets in the Mackenzie Delta and Beaufort Sea for $159 million and assets in Australia for $31 million, before closing adjustments
- Announced an agreement to sell remaining interests in Brazil for approximately $165 million, before closing adjustments. The sale is expected to close in the first half of 2008, pending certain conditions and regulatory approvals.
Strong natural gas production in 2007 led by U.S. resource plays
Total natural gas production averaged about 3.6 Bcf/d in 2007, an increase of 6 percent - roughly twice the company's original forecast - principally due to strong performance from the Jonah and East Texas properties. Gas production growth was led by a 14 percent increase in U.S. production. In 2007, U.S. natural gas production represented about 40 percent of EnCana's total natural gas portfolio. That share is expected to increase to almost 45 percent in 2008.
Integrated oil adds strong cash flow
EnCana saw strong financial performance from the first full year of its integrated oil business. Regional and local market factors have an impact on refining crack spreads. The Wood River and Borger refineries are located in markets influenced by U.S. Mid-Continent and Chicago 3-2-1 crack spreads, which for most of the year were strong relative to U.S. Gulf Coast and NYMEX crack spreads. Refining margins tracked well above historical levels through the middle of 2007, helping the integrated oil business generate about $1.3 billion in operating cash flow.
Deep Panuke gas project offshore Nova Scotia approved
Following the receipt of regulatory approval to develop the Deep Panuke natural gas project, EnCana sanctioned the $700 million project. Deep Panuke, located about 175 kilometres offshore Nova Scotia, is scheduled to start production in late 2010 and is expected to deliver between 200 million and 300 million cubic feet of natural gas per day to markets in Canada and the northeast United States.
Fourth quarter production continues strong growth
EnCana's fourth quarter natural gas production increased 9 percent, with production at 3.7 Bcf/d, compared to the same quarter in 2006. Oil and natural gas liquids production increased 4 percent, with production at 136,000 bbls/d. Fourth quarter cash flow per share increased 17 percent to $2.56 or $1.9 billion and operating earnings per share increased 33 percent to $1.12, or $849 million.
Key natural gas resource play production up 14 percent
Natural gas production from EnCana's key resource plays increased 14 percent in 2007 to 2.7 Bcf/d, up from 2.4 Bcf/d in 2006. The increase was led by strong results in the U.S., where total gas production was up 14 percent, with the strongest growth in East Texas at 44 percent, Fort Worth in Texas at 23 percent and Jonah in Wyoming at 20 percent. In the fourth quarter, the company also saw the benefit of incremental production gains from the Deep Bossier acquisition. In 2007, total gas production in Canada increased 2 percent. Growth was strong at Cutbank Ridge in northeast British Columbia at 38 percent, the company's coalbed methane (CBM) production in central and southern Alberta at 34 percent, and Bighorn in west central Alberta at 31 percent. Drilling successes in Canada were offset by natural declines at conventional properties.
Oil production from Foster Creek and Christina Lake was up 25 percent to 26,814 bbls/d. Overall, key resource play gas and oil production for the year was up 13 percent.
Finding and development costs by commodity
In 2007, F&D costs for natural gas and associated liquids were approximately $2.40 per Mcfe, down from about $2.70 per Mcfe in 2006. Natural gas and associated liquids reserves additions were approximately 2.0 Tcfe with capital investments of $4.7 billion in 2007, compared to 2006 reserves additions of about 1.9 Tcfe with capital investments of $5 billion.
In 2007, F&D costs for crude oil were approximately $3.60 per bbl, down from about $5.45 per bbl in 2006. Crude oil reserves additions were approximately 233 million bbls and capital investments were $840 million in 2007, compared to 2006 reserves additions of about 199 million bbls and capital investments of $1.1 billion.
For the three years, 2005-2007, EnCana's F&D costs for natural gas and associated liquids averaged approximately $2.35 per Mcfe based on total reserves additions of about 6.4 Tcfe and total capital investments of $15 billion. For the same period, F&D costs for crude oil averaged approximately $3.60 per bbl based on total reserves additions of about 820 million bbls and total capital investments of $3 billion.
Reserves replacement cost
Reserves replacement cost for 2007 post integrated oil was approximately $2.20 per Mcfe, which includes divestitures of 32 Bcfe for proceeds of $382 million. EnCana's three-year (2005 - 2007) reserves replacement cost was approximately $1.60 per Mcfe.
