Encana reduces 2016 capital budget by 25%

Encana Corp. plans a 2016 capital budget of $1.5-1.7 billion, down $600 million compared with its 2015 budget.

Of the 2016 total budget, 95% will be directed toward the Montney and Duvernay shale areas in Canada and the Eagle Ford and Permian areas in Texas. The Permian will receive 50% of the total budget.

The company expects a 12% increase in production from the company’s core four assets and a more than 10% increase in operating margins after normalizing for commodity prices.

That will come with an anticipated 10-15% reduction in drilling and completion costs and more than 10% reduction in corporate costs.

“We will continue to deliver strong margin growth through 2016 by directing the majority of our capital to drilling and completions activity in our core four assets,” said Doug Suttles, Encana president and chief executive officer. “This will maintain their scale and position the company to grow long-term shareholder value and cash flow into 2017 and beyond.”

Production from Encana’s core four assets is expected to average between 260-280,000 boe/d, representing more than 75% of total expected production. The company estimates total production of 340,000-370,000 boe/d, liquids production of 120,000-140,000 b/d, and natural gas volumes of 1.3-1.4 bcfd, each reflecting the impact of previously announced and completed divestitures in 2015.

Encana says it significantly enhanced its financial flexibility and reduced debt in 2015 through a $1.44 billion (Can.) bought deal equity offering and $2.8 billion in expected divestiture proceeds.

The company most recently agreed to sell its Haynesville gas assets in northern Louisiana to a joint venture formed by GeoSouthern Haynesville LP and funds managed by Blackstone Group LP’s GSO Capital Partners LP for $850 million (OGJ Online Aug. 25, 2015); and its DJ basin assets in Colorado to a new entity 95% owned by Canada Pension Plan Investment Board and 5% by Broe Group for $900 million (OGJ Online, Oct. 8, 2015).

Encana’s 2016 capital program is based on assumptions of $50/bbl West Texas Intermediate crude oil prices and NYMEX natural gas prices of $2.75/MMbtu, and will be funded through expected cash flow of $1-1.2 billion along with existing credit facilities.

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