CALGARY, Alberta, July 21, 2017 (GLOBE NEWSWIRE) — Encana’s (TSX:ECA) (NYSE:ECA) performance through the second quarter has put the company well ahead in the first year of its five-year plan. Driven by strong oil and condensate growth, an increasingly liquids-weighted portfolio and lower costs, Encana significantly expanded its non-GAAP corporate margin. Core asset growth is ahead of schedule and the company increased its type curves and premium return well inventory. Encana has increased total liquids production and lowered costs in its updated 2017 corporate guidance.
Highlights from the quarter include:
- Net earnings of $331 million compared to a loss of $601 million in the second quarter of 2016
- Cash from operating activities of $218 million and non-GAAP cash flow of $351 million, up 26 percent from the previous quarter
- Non-GAAP corporate margin of $12.19 per barrel of oil equivalent (BOE), up 25 percent from the previous quarter despite lower benchmark commodity prices
- Core asset production of 246,500 barrels of oil equivalent per day (BOE/d), up 9,200 BOE/d from the previous quarter; Encana now expects its core assets will deliver 25 to 30 percent production growth from the fourth quarter of 2016 to the fourth quarter of 2017
- Liquids production of 124,900 barrels per day (bbls/d), including oil and condensate production of 100,200 bbls/d, up 14 percent from the previous quarter
- Increased well productivity across its core assets and grew its premium return well inventory to over 11,000 locations
- Announced sale of Piceance natural gas assets
- By year-end 2017, Encana expects its net debt to adjusted EBITDA ratio will be approximately two times and that it will have total liquidity of over $5 billion
“Our results highlight our resilience and demonstrate that we can deliver quality corporate returns through the commodity cycle,” said Doug Suttles, Encana President & CEO. “Our transition to a balanced production mix, strong oil and condensate growth and lower costs are driving corporate margin expansion. For the third consecutive year, we are significantly strengthening our balance sheet.”
“Driven by innovation and operational excellence, we continue to expand our premium return well inventory,” added Suttles. “Our updated guidance reflects our strong performance, efficiency and confidence. We are generating significant momentum and are well positioned for 2018 when we expect to grow within cash flow, even if commodity prices remain at today’s levels.”
Strong second quarter results: Outperforming plan and updating 2017 guidance
Encana generated cash from operating activities of $218 million in the second quarter of 2017. Non-GAAP cash flow was $351 million compared to $278 million in the previous quarter. The company delivered second quarter net earnings of $331 million, or $0.34 per share. Non-GAAP operating earnings were $180 million compared to $104 million in the previous quarter.
Encana’s strong oil and condensate growth, increasingly liquids-weighted portfolio, lower costs and robust risk management strategy contributed to a non-GAAP corporate margin of $12.19 per BOE in the second quarter, up 25 percent from $9.72 per BOE in the first quarter. Year-to-date, the company’s non-GAAP corporate margin has averaged $10.96 per BOE.
The company delivered second quarter total production of 316,000 BOE/d, including total liquids production of 124,900 bbls/d, of which 80 percent was oil and condensate. Encana’s second quarter liquids volumes accounted for approximately 40 percent of its total production mix, up from 35 percent in the first quarter. The company’s core assets contributed 246,500 BOE/d, representing almost 80 percent of total production. Natural gas production averaged 1,146 million cubic feet per day (MMcf/d).
Encana is outperforming its initial 2017 corporate guidance. Reflecting its efficiency, the company is maintaining its original capital investment guidance range while lowering expected costs and increasing expected production growth from its core assets from the fourth quarter of 2016 to the fourth quarter of 2017 to between 25 to 30 percent. Updated 2017 guidance can be found on Encana’s website at http://www.encana.com/investors/financial/corporate-guidance.html.
Innovation driving value: Boosting premium type curves and growing premium inventory
Encana’s ability to scale ideas and technology across its multi-basin portfolio is a powerful competitive advantage. Driven by cube development, optimized completions, improved targeting and lower costs, Encana outperformed its average initial production 180-day (IP180) type curves by between 20 to 45 percent. In addition, the company has grown its premium return well inventory to over 11,000 locations including the replacement of all premium wells drilled since October 2016.
In the Permian, Encana delivered a 20 percent increase in IP180 type curves and increased its premium return well inventory by 700 locations. The company has 45 cube wells on production and aims to create additional upside through advanced completions design and new benches.
In the Montney, Encana delivered a 25 percent increase in IP180 type curves and increased its premium return well inventory by 1,000 locations. The company expects to double oil and condensate production from the fourth quarter of 2016 to the fourth quarter of 2017 and has drilled 28 condensate-rich cube wells in the Tower North area.
In the Eagle Ford, Encana delivered a 45 percent increase in average IP180 type curves and grew oil and condensate production by 30 percent from the previous quarter. The company increased its premium return well inventory by 40 locations.
In the Duvernay, the company has replaced all of the 30 premium return well locations it has drilled since October 2016.
Driving further cost efficiencies: More than offsetting inflation
Encana continues to successfully manage inflation as it efficiently develops its core assets at scale. Through sophisticated planning, supply chain management and operating efficiencies, the company expects to hold like-for-like drilling and completion costs essentially flat year-over-year. On a per unit basis, combined second quarter operating costs (excluding long-term incentives) and transportation and processing costs were down $0.34 per BOE compared to the first quarter of 2017.
Highly resilient: Driving value through the commodity cycle and balance sheet strength
Operational improvements and productivity gains across the portfolio through the first half of 2017 strengthened Encana’s resiliency. The company now expects it can deliver its five-year growth plan, announced in October 2016, in a flat $50 WTI oil price environment.
For the third consecutive year, Encana expects to significantly strengthen its balance sheet. The sale of its Piceance assets is expected to close in the third quarter of 2017. Transaction proceeds plus cash flow from anticipated strong operating performance means that by year-end 2017, Encana expects its net debt to adjusted EBITDA ratio will be approximately two times and that it will have total liquidity of over $5 billion. Encana has no debt maturities until 2019 and almost 75 percent of its long-term debt is not due until 2030 and beyond.
Commercial mindset: Managing risk and preserving optionality
Encana’s multi-basin portfolio, short-cycle capital program and robust risk management strategy give the company significant flexibility and position it to effectively manage risk and protect value. Encana has protected over 75 percent of its expected oil, condensate and natural gas production for the remainder of 2017 and has limited its exposure to AECO natural gas and Midland oil regional pricing through 2020 through a combination of term financial basis hedging and physical transportation agreements.
As at June 30, 2017, Encana had hedged approximately 88,000 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 $49.73 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 $3.10 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 650 MMcf/d of expected natural gas production at an average price of $3.07 per Mcf.
On July 20, 2017, the Board declared a dividend of $0.015 per share payable on September 29, 2017 to common shareholders of record as of September 15, 2017.
|Second Quarter Highlights|
|Non-GAAP Cash Flow Reconciliation|
|(for the period ended June 30)
|Q2 2017||Q2 2016|
|Cash from (used in) operating activities
Deduct (add back):
Net change in other assets and liabilities
Net change in non-cash working capital
Current tax on sale of assets
|Non-GAAP cash flow1||351||182|
|Non-GAAP Operating Earnings Reconciliation|
|Net earnings (loss)
Before-tax (addition) deduction:
Unrealized gain (loss) on risk management
Non-operating foreign exchange gain (loss)
Gain (loss) on divestitures
|After-tax (addition) deduction||151||(690)|
|Non-GAAP operating earnings 1||180||89|
|1 Non-GAAP cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1.|
|(for the period ended June 30)
|Q2 2016||% ∆|
|Natural gas (MMcf/d)||1,146||1,418||(19||)|
|Total production (MBOE/d)||316.0||368.3||(14||)|
|Liquids and Natural Gas Prices|
|Q2 2017||Q2 2016|
|Oil and NGLs ($/bbl)|
|Encana realized liquids price1||41.97||38.47|
|Encana realized gas price1 ($/Mcf)||2.56||1.86|
|1 Prices include the impact of realized gains (losses) on risk management.|
Second Quarter Conference Call
A conference call and webcast to discuss the 2017 second quarter results will be held for the investment community today (July 21, 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 live audio webcast of the second quarter conference call, 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 oil, natural gas liquids (NGLs) and natural gas. 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.