Encana’s first quarter performance strongly underpins its five-year plan and 2017 objectives of returning to growth by mid-year, delivering at least 20 percent production growth in its core assets from the fourth quarter of 2016 to the fourth quarter of 2017 and maintaining or enhancing efficiencies despite sector inflation. Highlights from the quarter include:
- net earnings of $431 million compared to a net loss of $379 million in the first quarter of 2016
- cash from operating activities of $106 million and non-GAAP cash flow of $278 million
- non-GAAP corporate margin of $9.72 per barrel of oil equivalent (BOE), up from $2.92 per BOE in the first quarter of 2016
- core asset production of 237,300 barrels of oil equivalent per day (BOE/d), representing 75 percent of total production
- liquids production of 110,900 barrels per day (bbls/d) including oil and plant condensate production of 87,900 bbls/d, which represents almost 80 percent of total liquids production
- enhanced well performance across the portfolio using an advanced completion design pioneered in the Eagle Ford during the previous quarter
- new Permian 12-well pad delivered peak daily production of 14,000 BOE/d, including 11,000 bbls/d of oil
- infrastructure on schedule to support Montney liquids growth to an expected 70,000 bbls/d by 2019
“Our culture of innovation and agility drives the real-time transfer of technology across our multi-basin portfolio to create a strong competitive advantage,” said Doug Suttles, Encana President & CEO. “We saw this during the quarter, when the combination of our large multi-well pads, simultaneous use of multiple drilling rigs and frac spreads and advanced completion design drove efficiencies and returns.”
“Our strong performance through the first quarter gives us a lot of confidence for 2017 and our five-year plan,” added Suttles. “We expect to significantly increase crude and condensate production through the year and deliver strong corporate margin growth. We are boosting well productivity while offsetting inflation through continued operational efficiencies and active supply chain management. Our risk management and marketing programs effectively manage risk and preserve optionality.”
Strong first quarter results: Encana positioned to meet or exceed 2017 targets
Encana reported strong financial and operational results for the first quarter, driven by increased liquids production and improved margins. The company expects to grow oil and condensate production by greater than 35 percent and total production from its core assets by more than 20 percent between the fourth quarter of 2016 and the fourth quarter of 2017. This includes an expected fourth quarter ramp up of Montney production when new facilities become operational. The company expects total production will begin to grow from the middle of 2017.
In 2018, Encana is positioned to further increase its non-GAAP corporate margin at flat pricing of $55 WTI and $3 NYMEX and grow total production from its core assets between the fourth quarter of 2017 and the fourth quarter of 2018.
Encana generated cash from operating activities of $106 million in the first quarter of 2017. Non-GAAP cash flow was $278 million compared to $102 million in the first quarter of 2016. Encana delivered first quarter net earnings of $431 million, or $0.44 per share, compared to a first quarter 2016 net loss of $379 million. Non-GAAP operating earnings were $104 million, or $0.11 per share, compared to a first quarter 2016 non-GAAP operating loss of $130 million.
The company’s focus on its premium return well inventory, combined with continued efficiencies, contributed to a first quarter non-GAAP corporate margin of $9.72 per BOE, up from $2.92 per BOE in the first quarter of 2016. This is ahead of the company’s expectations and sets Encana on track to deliver a non-GAAP corporate margin of greater than $10.00 per BOE in 2017.
The company delivered first quarter production of 317,900 BOE/d, including total liquids production of 110,900 bbls/d, of which almost 80 percent was light oil and plant condensate. Encana’s core assets contributed 237,300 BOE/d, making up 75 percent of total production. Natural gas production in the first quarter averaged 1,241 million cubic feet per day (MMcf/d).
Encana concluded the first quarter of 2017 with total liquidity of more than $5.0 billion, comprising cash and cash equivalents of $523 million and available credit facilities of $4.5 billion. Encana further streamlined its portfolio with the sale of its Tuscaloosa Marine Shale assets in Mississippi and Louisiana; the transaction was completed on April 13, 2017.
Delivering better wells: Multi-basin advantage and advanced completion design
Encana continues to innovate and share knowledge across its high-quality, multi-basin portfolio to deliver better wells and quality returns. The company is delivering strong well performance using an advanced completion design that it successfully piloted in the Eagle Ford in late 2016. In the Montney, this design delivered up to a 60 percent production increase on two wells in the Tower area and two wells in Pipestone over a 60-day period.
This design is also driving strong results in the Austin Chalk area of the Eagle Ford, with three wells brought on production during the first quarter each delivering average 30-day initial production rates of 1,300 BOE/d, including 1,000 bbls/d of oil. In addition, five new Austin Chalk wells brought on production in mid-April are each delivering an average of over 2,150 BOE/d, including over 1,900 bbls/d of oil. Advanced completions are underway in the Permian and Duvernay.
Differentiated execution: Developing the Cube
Encana continues to pioneer new approaches with its large multi-well pad, full-scale development model. This development approach targets multiple stacked pay zones from a single above-ground location to optimize resource recovery and lower development costs and operating expenses.
The most recent example of Encana’s full-scale development is its Abbie Laine pad in the Permian. During the first quarter, Encana targeted five different stacked pay zones from 12 wells with each delivering an average 30-day initial production rates of over 1,000 BOE/d, including over 800 bbls/d of oil. Peak daily production from the 12-well pad was approximately 14,000 BOE/d, including 11,000 bbls/d of oil.
Maintaining well costs: Efficiencies outpace sector inflation
In anticipation of a busier year for the industry, Encana secured between 60 and 70 percent of its 2017 drilling and completions program through self-sourcing or at contracted rates in the fourth quarter of 2016. The company expects to hold total year-over-year drilling and completion costs essentially flat through active supply chain management and ongoing operating efficiencies.
Encana is on track to meet or exceed its 2017 guidance. First quarter operating expense was down by $34 million, or 20 percent year-over-year, and transportation and processing costs were down by $57 million, or 21 percent, compared to the first quarter of 2016.
Managing risk and preserving optionality: Updates to Encana’s Risk Management Program
Encana’s multi-basin portfolio, short-cycle capital program and robust risk management strategy effectively position the company to manage risk and protect value. Encana has protected between 70 and 75 percent of its expected oil, condensate and natural gas production for the remainder of 2017.
As at April 26, 2017, Encana had hedged approximately 81,000 bbls/d of expected 2017 oil and condensate production for the balance of the year using a variety of structures at an average price of $51.33 per barrel (bbl). The company has hedged approximately 865 MMcf/d of expected 2017 natural gas production for the balance of the year using a variety of structures at an average price of $3.15 per thousand cubic feet (Mcf). For 2018, the company has hedged approximately 31,000 bbls/d of expected oil and condensate production at an average price of $55.45 per bbl and approximately 500 MMcf/d of expected natural gas production at an average price of $3.06 per Mcf.
In addition, Encana is actively managing regional price risk through a combination of term financial basis hedging and physical transportation, resulting in Encana having only limited exposure to AECO natural gas and Midland oil pricing through 2020.
In the Montney, over 50 percent of Encana’s 2017 and two thirds of its expected 2018 to 2020 Western Canadian natural gas price exposure is protected from the AECO benchmark. From 2018 to 2020, the company expects to transport approximately 500 MMcf/d of its physical gas to market areas in the Pacific Northwest, Midwest (Chicago) and Northeast (Dawn, Ontario). Long-term financial basis hedge programs further diversify away from the AECO market. Encana has hedged approximately 475 MMcf/d of AECO basis for the 2018 to 2020 period at NYMEX less $0.87 per Mcf.
In the Permian, more than 80 percent of Encana’s expected 2017 to 2020 oil production is protected from Midland pricing. In 2017, Encana has hedged an average of 35,000 bbls/d of Midland differential at WTI less $0.61 per bbl. From 2018 to 2020, Encana has hedged an average of approximately 17,000 bbls/d of Midland differential at WTI less $0.83 per bbl. The company’s physical transportation includes 25,000 bbls/d on Enterprise Products’ upcoming Midland-to-Houston pipeline with an option for up to an additional 25,000 bbls/d. Production delivered on this pipeline will have access to the Houston refining complex and export markets.
On May 1, 2017, the Board of Directors declared a dividend of $0.015 per common share payable on June 30, 2017 to common shareholders of record as of June 15, 2017.
|First Quarter Highlights|
|Non-GAAP Cash Flow Reconciliation|
|(for the period ended March 31)
($ millions, except per share amounts)
|Q1 2017||Q1 2016|
|Cash from (used in) operating activities||106||157|
|Deduct (add back):|
|Net change in other assets and liabilities||(12)||(4)|
|Net change in non-cash working capital||(160)||59|
|Non-GAAP cash flow1||278||102|
|Non-GAAP Operating Earnings Reconciliation|
|Net earnings (loss)||431||(379)|
|Before-tax (addition) deduction:|
|Unrealized gain (loss) on risk management||362||(55)|
|Non-operating foreign exchange gain (loss)||34||344|
|Gain (loss) on divestitures||(1)||–|
|Gain on debt retirement||–||89|
|After-tax (addition) deduction||327||(249)|
|Non-GAAP operating earnings (loss)1||104||(130)|
|Non-GAAP operating earnings (loss) per share||0.11||(0.15)|
1 Non-GAAP cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1.
|(for the period ended March 31)
|Q1 2017||Q1 2016||% ∆|
|Natural gas (MMcf/d)||1,241||1,516||(18)|
|Total production (MBOE/d)||317.9||383.4||(17)|
|Natural Gas and Liquids Prices|
|Q1 2017||Q1 2016|
|Encana realized gas price1 ($/Mcf)||2.50||2.18|
|Oil and NGLs($/bbl)|
|Encana realized liquids price1||43.45||33.09|
1 Prices include the impact of realized gain (loss) on risk management.
First Quarter Conference Call and Annual Meeting of Shareholders
A conference call and webcast to discuss the 2017 first quarter results will be held for the investment community today, May 2, 2017, at 7 a.m. MT (9 a.m. ET). To participate, please dial (844) 707-0663 (toll-free in North America) or (703) 326-3003 (international) approximately 10 minutes prior to the conference call.
The Annual Meeting of Shareholders will be held today, May 2, 2017, at the BMO Centre, Palomino Room, 20 Roundup Way S.E., Calgary, Alberta, beginning at 10 a.m. MT (12 p.m. ET). Live audio webcasts of the first quarter conference call and the Annual Meeting of Shareholders, including slides, will also be available on Encana’s website, www.encana.com, under Investors/Presentations & Events. The webcasts will be archived for approximately 90 days.
Encana is a leading North American energy producer that is focused on developing its strong portfolio of resource plays, held directly and indirectly through its subsidiaries, producing natural gas, oil and natural gas liquids (NGLs). By partnering with employees, community organizations and other businesses, Encana contributes to the strength and sustainability of the communities where it operates. Encana common shares trade on the Toronto and New York stock exchanges under the symbol ECA.