• Raising full year cash flow guidance to between $10.20 and $10.70 per share
• Natural gas production increases 4 percent to 3.5 billion cubic feet per day
Solid natural gas and oilsands production growth, stronger realized gas prices and robust refining margins all contributed to substantial increases in EnCana Corporation's cash flow and operating earnings in the second quarter of 2007.
"Now transformed into a leading integrated producer of North American unconventional natural gas and in-situ oilsands, our company is hitting its stride. Our diverse portfolio of natural gas, oil and oilsands resource plays and our interests in two refineries are generating strong financial and operating performance. Second quarter cash flow and operating earnings are significantly higher than one year ago, production is on track to meet our full-year targets and capital costs are tracking below budget at mid-year. Our sustainable low-risk business model is delivering on our expectations and we are well positioned to create strong, long-term performance," said Randy Eresman, EnCana's President & Chief Executive Officer.
"Based on our expectations for the remainder of the year and the strong cash flow performance to date from our upstream operations and the larger-than-expected contributions from our integrated oilsands business, we are raising our annual guidance for total cash flow to a range of $7.8 billion to $8.2 billion. Also, having already completed a significant portion of our planned share purchase program, cash flow per share guidance is now between $10.20 and $10.70, representing a forecast growth range of 19 to 25 percent compared to 2006," Eresman said.
Second Quarter 2007 Highlights (all comparisons are to the second quarter of 2006)
Financial - US$
• Cash flow per share diluted increased 55 percent to $3.33, or $2.55 billion (includes $0.17 billion, or 23 cents per share, of tax recoveries due to legislative changes)
• Operating earnings per share diluted up 84 percent to $1.80, or $1.38 billion (includes $0.23 billion, or 30 cents per share, of tax recoveries due to legislative changes)
• Net earnings per share diluted down 26 percent to $1.89, or $1.45 billion (in the second quarter of 2006 EnCana recorded about $1.3 billion of non-operating gains, or $1.57 per share)
• Integrated oilsands business generated $500 million of operating cash flow
• Core capital investment in continuing operations down 28 percent to $1.17 billion
• Generated $1.38 billion of free cash flow
• Purchased approximately 12 million EnCana shares at an average price of $59.23 under the Normal Course Issuer Bid
Operating - Upstream
• Natural gas production increased 4 percent to 3.51 billion cubic feet per day (Bcf/d), up 14 percent per share
• Oil and natural gas liquids (NGLs) production up 1 percent on a pro forma basis to more than 133,000 barrels per day (bbls/d), up 10 percent per share
• Total natural gas and liquids production increased 4 percent on a pro forma basis to 4.31 billion cubic feet of gas equivalent per day (Bcfe/d), up 13 percent per share
• Key natural gas resource play production up 12 percent
• Grew gross integrated oilsands production 43 percent to 56,000 bbls/d (28,000 bbls/d net to EnCana) at Foster Creek and Christina Lake
• Operating and administrative costs of $1.17 per thousand cubic feet equivalent (Mcfe) in line with guidance; an increase of 14 cents per Mcfe compared to one year earlier, made up of 8 cents due to increased long term compensation costs resulting from a higher EnCana share price, 2 cents due to foreign exchange and 4 cents due to inflation, energy and other activity-related costs
Operating - Downstream
• Refined products production averaged 421,000 bbls/d (210,500 bbls/d net to EnCana)
• Refinery crude utilization of 88 percent is lower than the first quarter of 2007 due to the planned turnaround and coker startup at the Borger refinery. Year-to-date utilization is above expectations at 92 percent largely due to a strong utilization rate of 100 percent at the Wood River refinery.
• New 25,000 bbls/d Borger coker is operating well and is processing Canadian heavy oil blended from bitumen
Natural gas production on track with 2007 forecast
Natural gas production in the second quarter rose steadily with strong year-over-year increases in a number of key resource plays - 49 percent in East Texas, 37 percent in coalbed methane (CBM) and 31 percent in Cutbank Ridge. EnCana's second largest resource play, Jonah, increased production 16 percent compared to one year ago. Gas production is currently about 3.5 Bcf/d, on track to achieve full-year guidance of 3.46 Bcf/d.
Integrated oilsands business has a strong start in 2007
The financial performance of EnCana's emerging integrated oilsands business has been well above expectations to date, largely due to stronger than anticipated refining margins. The second quarter U.S. Gulf Coast 3-2-1 crack spread averaged more than $24 per barrel, with the May average peaking above $28 per barrel. Second quarter operating cash flow from the integrated oilsands business was $500 million.
During the first quarter of 2007, the integrated oilsands business delivered about 9 percent of EnCana's total operating cash flow. After six months, that share has increased to about 14 percent, a notable rise to $661 million, which is more than the company's original full-year forecast of between $550 million and $650 million. As a result, EnCana has increased its 2007 guidance for integrated oilsands operating cash flow to $1.1 billion.
"Our shareholders have benefited from refinery margins that are well above historical levels. While those margins are expected to soften in the latter half of 2007 following the end of the summer driving season, they are likely to stay strong for the foreseeable future due to limited spare refining capacity, continued strong transportation fuels demand and a stable economy. The financial performance of our integrated oilsands business in this, its inaugural year, has exceeded our expectations and the operating performance is tracking well against our objectives and targets - a great start to our newly created partnership with ConocoPhillips," Eresman said.
