IMPORTANT NOTE: EnCana's year-end reserves and operating results follow U.S. protocols, which report reserves and sales on an after-royalties basis. All financial information contained in this news release is in U.S. dollars and is based on preliminary, unaudited financial results.
"Our natural gas resource plays continue to deliver strong growth in production and reserves. During the past year, we undertook several major steps in sharpening our strategic focus on North American unconventional resources. The acquisition of Tom Brown, Inc. and the sale of our U.K. North Sea assets were major strides in accomplishing that objective. With the addition of 2.2 trillion cubic feet of proved reserves through the drill bit plus another 0.9 trillion cubic feet of net reserve additions through acquisitions and divestitures, we have grown the underlying value of the company and net asset value of each share," said Gwyn Morgan, EnCana's President & Chief Executive Officer.
The company's divestiture of its U.K. North Sea assets and mature conventional Canadian oil properties offset drill bit reserve additions of oil. This means that essentially all of the company's proved reserves growth in 2004 was North American natural gas.
Three years of strong production replacement at profitable costs
"During each year of EnCana's operations, production replacement has averaged nearly 200 percent, excluding the 2004 bitumen revision. In 2004 the combination of drilling, acquisitions and divestitures generated a reserve replacement cost of $1.40 per thousand cubic feet equivalent, excluding the bitumen revision, compared with EnCana's average netback after operating and administration costs of $4.00 per thousand cubic feet equivalent. This yields a recycle ratio of almost 2.9 times, which is a strong indicator of the value our teams have created. Even though demand for services has fuelled overall industry cost inflation and the rising Canadian dollar has increased costs, we have achieved very consistent and competitive reserve replacement costs over the past three years averaging $1.42 per thousand cubic feet equivalent," said Randy Eresman, EnCana's Chief Operating Officer.
2004 natural gas and oil sales increase 16 percent
EnCana's 2004 natural gas, oil and NGLs sales increased 16 percent to average 4.6 Bcfe per day (760,000 barrels of oil equivalent (BOE) per day), which is comprised of 3.0 billion cubic per day of gas sales and 260,000 barrels of oil and NGLs sales per day. This is at the upper end of the investor guidance of between 4.35 Bcfe and 4.59 Bcfe per day (725,000 and 765,000 BOE per day). EnCana drilled 4,955 net wells in 2004, comprised of 4,343 development and 612 exploration wells.
Bitumen reserve additions of 76 million barrels, before revision
While delivering profitable results for the year as a whole, bitumen production from oilsands was subject to abnormally low prices at year end. As previously announced on February 1, 2005, due to the requirements of the U.S. Securities and Exchange Commission (SEC) that year-end pricing be used for the calculation of reserve estimates, EnCana removed approximately 363 million barrels of Foster Creek bitumen reserves from the proved category. This revision included approximately 76 million barrels of bitumen reserves which EnCana has included as reserve additions in 2004. The SEC rules require that reserves be evaluated on the single day field price of the commodity at the effective date of the evaluation - December 31, 2004, which was a day when oilsands prices were less than 15 percent of West Texas Intermediate (WTI) - the North American benchmark for light crude oil pricing. Historically, bitumen prices have averaged about 50 percent of WTI and if January 2005 prices, which averaged 30 percent of WTI, were used in the reserve calculation no negative revision of EnCana's bitumen reserves would have occurred. The company plans to continue to invest in expansion of its oilsands production.
Oil and NGLs additions in 2004 offset by divestiture of conventional oil reserves
EnCana discovered and acquired about 233 million barrels of proved oil and NGLs reserves in 2004, essentially equal to the 231 million barrels of conventional oil reserves sold. About 55 percent of the sold reserves were contained in the company's $2.1 billion sale of its U.K. North Sea properties. Excluding the bitumen revisions, EnCana added 182 million barrels organically, which represents a 191 percent production replacement.
The company previously announced plans to divest of its Ecuador and Gulf of Mexico assets in 2005, which accounted for reserves of 183 million barrels of oil equivalent at year-end 2004. Accordingly, the U.K. and Ecuador results have been treated as discontinued operations for financial reporting purposes.
Gas reserves additions found in North American resource plays
EnCana's gas reserves additions were primarily in Cutbank Ridge in British Columbia, coalbed methane and shallow gas in southern Alberta, Jonah and Piceance in the U.S. Rockies, plus Fort Worth, East Texas and the Permian in Texas. Oil reserve additions were primarily in the Tahiti discovery in the Gulf of Mexico and Foster Creek in Alberta.
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