With its sight set on sustainably growing shareholder value, Encana Corporation today announced a disciplined capital program focused on generating profitable growth through investment in five core liquids-rich resource plays.
"In November, we announced a clear vision and strategy to lay the foundation for Encana's future," says Doug Suttles, Encana President & CEO. "Going forward through to 2017 we will measure success by our performance on three key indicators; our transition to a balanced commodity portfolio, operational excellence and the integrity of our balance sheet."
In order to transition to a more balanced commodity portfolio and achieve a goal of deriving approximately 75 percent of its cash flow from oil and natural gas liquids by 2017, Encana will focus three quarters of its planned $2.4 billion to $2.5 billion capital investment in 2014 on five oil and liquids-rich assets: the Montney, Duvernay, DJ Basin, San Juan Basin and the Tuscaloosa Marine Shale (TMS). These five assets are expected to make up about 25 percent of total production in 2014 while generating approximately 45 percent of total upstream operating cash flow before the impact of commodity price hedging.
Operationally, the Company's forecasted production, on a total equivalency basis, is expected to remain unchanged from last year despite a more than 10 percent reduction in planned capital investment from 2013 levels. Total liquids production is expected to grow by 30 percent year-over-year which will offset a small decline in expected gas production for 2014. With growth in higher margin liquids, the Company is estimating it will achieve an approximate 10 percent increase in netbacks in 2014.
Maintaining a strong balance sheet and investment grade credit rating continues to be a priority for Encana. In 2014, the Company will maintain its balance sheet integrity by aligning its capital expenditures with cash flow and unlocking value from its asset base through an initial public offering (IPO) of its Clearwater Royalty business. The Company also plans to repay from cash a US$1 billion, 5.8 percent note maturity due May 1, 2014.
"The goal of all our deliverables for 2014 is targeted at creating sustainable shareholder value for next year and beyond," adds Suttles. "The work we completed in 2013 has positioned us very well for a strong start in 2014, a start well aligned with our new strategy."
With its focus firmly set on successful execution of its strategy, Encana's key deliverables for 2014 include:
- growing high-quality total liquids production
- completing appraisal of two high-potential emerging liquids plays, the TMS and the Willesden Green area in the southern portion of the Duvernay
- continuing to reduce costs and improve capital efficiency
- optimizing the performance of base production areas by reducing production decline to a rate between 25 and 27 percent
- unlocking value from its portfolio through an IPO of its Clearwater royalty business
As a result of the Company's focused strategy and capital investment plan, Encana projects its full-year 2014 upstream operating cash flow, including hedging, to be between $3.0 billion and $3.2 billion. Total cash flow is expected to range between $2.4 and $2.5 billion. Natural gas production is expected to average between 2.6 billion cubic feet per day (Bcf/d) and 2.8 Bcf/d and total liquids production between 70 thousand barrels per day (Mbbls/d) and 75 Mbbls/d.
Through its disciplined and focused growth strategy, the Company believes it can average a more than 10 percent compound annual growth rate in cash flow per share through 2017.
Encana's complete Guidance can be downloaded from the Company's website (http://www.encana.com/investors/financial/corporate-guidance.html).
Objectives for the five core growth plays
Montney: Encana plans to accelerate its development of the oil and liquids-rich areas of this play, specifically the Gordondale, Pipestone and Tower areas, while continuing to improve capital efficiency across the play. Encana will invest between $800 million to $900 million in the play next year. Total investment in the play for 2014, including carry capital from the Cutbank Ridge Partnership with Mitsubishi, will reach $1.7 billion to $1.8 billion. The Company plans to run a six to eight drilling rig program to drill 80 to 85 net wells in 2014.
Duvernay: Encana will move into full resource play hub development mode with pad drilling in the northern Kaybob area of the Duvernay, and complete its evaluation of the southern Willesden Green area. The Company will also work to finalize a midstream infrastructure solution to support future development. Encana plans to invest between $250 and $300 million of its capital in this play, running a six to eight drilling rig program with plans to drill 15 to 20 net wells in 2014. Total investment in the Duvernay, including the carry capital contributed as part of Encana's joint venture agreement with PetroChina, will be in the range of $1.0 billion to $1.2 billion for the year.
DJ Basin: Encana's focus in this oil and liquids-rich play will be to continuously improve capital efficiency with a goal to reach approximately 70 percent year-over-year growth in production in the play. The Company plans to invest $250 to $300 million and run a four to six drilling rig program to drill 40 to 50 net wells in 2014.
San Juan Basin: In the San Juan Basin, Encana will continue to advance its pace of development and work to further reduce well costs through the optimization of its completions process. Work will also continue to further delineate the Company's acreage. The Company intends to work with the Bureau of Land Management to find ways to streamline the permitting process. The Company plans to invest between $300 million and $350 million while running a two to four drilling rig program to drill 45 to 50 net wells in 2014.
TMS: In 2014 Encana will complete its assessment of the TMS with plans to invest $125 to $150 million to operate one to three drilling rigs and complete nine to 12 net wells.
Organizational alignment complete
Encana has completed the alignment of its organizational structure in support of the focused strategy announced by the Company on November 5. This restructuring resulted in an approximate 20 percent workforce reduction since the beginning of November. In the fourth quarter of 2013, Encana expects to take an approximate $65 million after-tax charge as a result of the restructuring.
"We have completed the most difficult part of our transition and I want to thank all of our staff for their professionalism and continued dedication to the company through what was a tough time for everyone at Encana," says Suttles. "With the announcement of our 2014 plans, we are solely focused on building an exciting and successful future for Encana."
Conference call for investors
Encana will host a conference call with a slide presentation for investors today, Wednesday, December 11, 2013, starting at 7:00 a.m. MT (9:00 a.m. ET). To participate, please dial (888) 231-8191 (toll-free in North America) or (778) 371-9827 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 12:00 p.m. ET on December 11 until midnight December 18 by dialing (855) 859-2056 or (416) 849-0833 and entering passcode 20561504. A live audio webcast of the conference call will also be available at www.encana.com, in the Invest in Us section under Presentations & Events. The webcast will be archived for approximately 90 days.