EnCana Cash Flow Rises 12% to US$5 Billion in 2004

EnCana (TSX & NYSE: ECA) reports a 12 percent increase in 2004 cash flow to US$4.98 billion, or $10.64 per common share diluted, compared to 2003. Total operating earnings in 2004 increased 41 percent to $1.98 billion, or $4.22 per common share diluted. Total operating earnings are net earnings excluding the after-tax impacts of a $1.4 billion gain on the sale of EnCana's U.K. North Sea assets, unrealized gains due to foreign exchange on US$ denominated debt issued in Canada and tax rate changes, and an unrealized mark-to-market loss. Net earnings in 2004 increased 49 percent to $3.5 billion, or $7.51 per common share diluted.

IMPORTANT NOTE: EnCana's 2004 year-end financial and operating results in this news release are reported on a total consolidated basis, unless otherwise noted. For financial statement purposes, EnCana is treating U.K. and Ecuador operations as discontinued because the U.K. operations were sold in December 2004 and EnCana plans to sell its Ecuador assets. EnCana reports in U.S. dollars and follows U.S. protocols, which report sales and reserves on an after-royalties basis. All dollar figures are U.S. dollars unless otherwise noted.

EnCana's double-digit sales growth and robust commodity prices contributed to strong increases in cash flow and operating earnings. Natural gas, oil and natural gas liquids (NGLs) sales increased 16 percent in 2004 to average 4.6 billion cubic feet equivalent (Bcfe) per day. On a per share basis, EnCana's 2004 sales increased 19 percent. Daily sales were comprised of 3.0 billion cubic feet of natural gas, up 17 percent from 2003, and approximately 260,000 barrels per day of oil and NGLs, a 13 percent increase. Operating and administrative costs in 2004 were approximately 70 cents per thousand cubic feet equivalent, which was within EnCana's guidance range.

"In 2004, our cash flow per share increased 14 percent, total operating earnings per share rose 45 percent and daily natural gas, oil and NGLs sales increased 19 percent per share. Since mid-year, we enhanced our financial strength by lowering our net debt-to-capitalization to 33 percent, well within our target range of 30 to 40 percent. At the same time, under our Normal Course Issuer Bid, we purchased about 4.3 percent of our shares for about $1 billion," said Gwyn Morgan, EnCana's President & Chief Executive Officer.

"This outstanding 2004 performance was achieved through strong organic growth from our portfolio of North American resource plays and by directing excess cash flow from operations and proceeds from our divestitures of conventional properties to strengthening our balance sheet and returning cash to shareholders through share purchases," Morgan said.

                     Financial and operating highlights
                                        2004                 Q4 - 2004
    Cash flow per share
     diluted                         $10.64, up 14%             $3.21, up 19%
    Total operating earnings
     per share diluted                $4.22, up 45%             $1.23, up 81%
    Net earnings per
     share diluted                    $7.51, up 53%            $5.55, up 510%
    Total Mcfe sales,
     per 1,000 shares            3,625 Mcfe, up 19%
    Natural gas reserves                  10.5 Tcf,
                                  up 28% per share

    Natural gas sales             3.0 Bcf/d, up 17%        3.11 Bcf/d, up 16%
    Oil and NGLs sales       260,000 bbls/d, up 13%   248,000 bbls/d, down 7%
    Total Bcfe sales            4.56 Bcfe/d, up 16%        4.60 Bcfe/d, up 7%

Two-for-one share split proposed

Due to EnCana's strong share price performance in 2004 and expectations for continuing strong operating performance, the company's board of directors is recommending that shareholders approve a two-for-one split of EnCana's common shares, which is expected to encourage greater market liquidity and wider distribution among retail investors. The proposed split will be voted on at EnCana's Annual and Special Meeting on April 27, 2005 in Calgary.

Fourth quarter cash flow up 19 percent, total operating earnings up 81 percent

In the fourth quarter of 2004, EnCana's cash flow increased 19 percent to $1.49 billion, or $3.21 per common share diluted, compared to the same 2003 period. Total operating earnings increased 81 percent to $573 million compared to the same 2003 period. Net earnings increased six fold from the same period in 2003 to $2.58 billion, or $5.55 per common share diluted, which includes a $1.4 billion gain from the sale of the company's U.K. North Sea assets.

Focusing on North American resource plays

"During 2004, we sharpened our strategic focus on unconventional resources in North America - natural gas and in-situ oilsands. The acquisition of resource play focused Tom Brown, Inc. for $2.7 billion and the divestiture of our U.K. North Sea assets for $2.1 billion, along with $1.4 billion in North American conventional asset divestitures, were significant strategic milestones. In the year, we became the continent's largest natural gas producer, at more than 3 billion cubic feet per day - enough gas to meet the daily requirements of every Canadian home, office, hospital, shopping centre and commercial building," Morgan said.

Tom Brown assets performing well

Natural gas production from the former Tom Brown, Inc. assets in the U.S. has increased about 13 percent in the seven months since the acquisition. EnCana added about 209 billion cubic feet equivalent of proved reserves, net of revisions, from former Tom Brown, Inc. lands in the U.S. in 2004.

EnCana continues to move ahead with divestiture of conventional assets

EnCana is planning to sell Canadian conventional properties producing about 22,000 BOE per day. In order to enhance shareholder value, EnCana is considering a variety of options to monetize these assets, including a cash sale or the conversion of the assets into an income trust.

EnCana is also planning the sale of its portfolio of discoveries and exploration interests in the Gulf of Mexico and producing properties and pipeline interests in Ecuador. As a result, Ecuador operations have been treated as discontinued for financial reporting purposes and EnCana's corporate guidance for 2005 has been updated to reflect this change. Proceeds from all of these divestitures are expected to be in the range of $3 billion, plus or minus.

"For 2005, we will further increase our focus on growing our long-life resource plays. And once we have completed our planned divestitures, we expect that about 80 percent of EnCana's production will be natural gas, generating about 85 percent of the company's operating cash flow," Morgan said.

North American natural gas reserves up 24 percent to 10.5 trillion cubic feet

While 2004 was a year of strong growth, the company also added to the source of its future growth. Proved reserves of North American natural gas increased 24 percent to 10.5 trillion cubic feet in 2004, adding 2.2 trillion cubic feet through the drill bit and acquiring a net 0.9 trillion cubic feet primarily through the Tom Brown, Inc. acquisition. With total net North America gas additions of 3.2 trillion cubic feet, compared to the 1.1 trillion cubic feet of production in 2004, EnCana's North America gas production replacement reached 290 percent. On February 1 and 16, 2005, the company issued more detailed results of its 2004 operations, including reserve additions, capital costs and a downward revision of 363 million barrels of bitumen reserves. All of EnCana's proved reserves estimates are prepared by independent qualified reserves evaluators.

Three years of consistent and competitive reserve addition costs

"EnCana's North American resource play exploitation programs steadily and predictably convert our huge unbooked resource potential to proved reserves. Future growth in reserves and production visibility is illustrated by the fact that our unbooked resource potential exceeds our proved reserves. Over the past three years, before the negative bitumen revision, we achieved a production replacement averaging nearly 200 percent, at an average cost of $1.42 per thousand cubic feet equivalent - a highly competitive cost during a time when increasing demand for field services and a rising Canadian dollar have fuelled inflation. In 2004, our proved reserve replacement costs were $1.40 per thousand cubic feet equivalent. With our average netback, after operating and administration costs, of $4.00 per thousand cubic feet equivalent in 2004, we've achieved a recycle ratio of 2.9 times - evidence of the strong value EnCana continues to create," said Randy Eresman, EnCana's Chief Operating Officer.

Fourth quarter natural gas sales up 16 percent, total gas and oil sales rise 7 percent despite divestitures

Fourth quarter natural gas, oil and NGLs sales averaged 4.6 Bcfe per day, up 7 percent from 4.3 Bcfe per day in the same period in 2003. Natural gas sales increased 16 percent to average 3.1 billion cubic feet per day. Oil and NGLs sales in the fourth quarter of 2004 averaged 247,600 barrels per day, down 7 percent from the same 2003 period due to the sale of conventional producing properties. EnCana drilled 958 net wells in the fourth quarter of 2004, comprised of 811 development wells and 147 exploration wells. EnCana targets 15 percent gas sales growth in 2005

In 2005, EnCana is forecasting daily gas sales of between 3.35 billion and 3.5 billion cubic feet, which, at midpoint, is approximately a 15 percent increase from the company's 2004 daily sales from continuing operations of 2.97 billion cubic feet per day. With planned divestitures of Canadian conventional oil and gas properties, EnCana expects 2005 oil and NGLs sales from continuing operations to be between 150,000 and 170,000 barrels per day. Overall, EnCana is forecasting 2005 daily sales of between 4.25 Bcfe and 4.5 Bcfe, up about 10 percent from 2004 daily sales of 3.97 Bcfe from continuing operations.

North American natural gas prices rise in 2004

North American realized field prices, excluding financial hedging, averaged $5.47 per thousand cubic feet, up 12 percent from an average of $4.87 per thousand cubic feet in 2003. Driven by continued strong demand despite the effects of a cooler summer and warmer average winter temperatures, the influence of strong oil prices and ongoing concerns about North American gas supply, the average 2004 benchmark NYMEX index gas price was $6.14 per thousand cubic feet, up 14 percent from $5.39 per thousand cubic feet in 2003. In the fourth quarter, EnCana's average realized field price, excluding financial hedging, was $6.08 per thousand cubic feet, up 35 percent from $4.49 in the same 2003 period. The average benchmark NYMEX index price was $7.11 per thousand cubic feet, an increase of 55 percent from the fourth quarter of 2003.

World oil prices strong in 2004; Canadian heavy oil price differentials widen

World oil prices rose dramatically through much of 2004 due to strength in global demand, primarily in Asia and North America and fourth quarter concerns over sufficient heating oil supply. Supply concerns were fuelled by Middle East tensions, the conflict in Iraq and, in the last half of 2004, hurricane damage to Gulf of Mexico production facilities. During 2004, the average benchmark West Texas Intermediate (WTI) crude oil price was $41.47 per barrel, up 34 percent over the 2003 average of $30.99 per barrel. OPEC increased production to satisfy demand, but new supplies were largely heavier grades and more sour blends, which contributed to a widening of the light- heavy price differential in Canada. The 2004 WTI/Bow River differential increased 60 percent to $12.82 per barrel compared to 2003; and is up more than double from more historical levels of $5.93 per barrel two years earlier in 2002. In Ecuador, the WTI/NAPO differential also widened to $14.33 per barrel, up 78 percent from $8.06 per barrel in the last four months of 2003. In 2004, EnCana's average realized oil and NGLs price, excluding hedging, was $29.17 per barrel; including hedging, it was $21.34 per barrel. In the fourth quarter, the company's average realized oil and NGLs price, excluding hedging, was $30.74 per barrel; including hedging, it was $20.61 per barrel.

Risk management strategy

EnCana's market risk mitigation strategy is intended to help deliver greater predictability of cash flow and returns on investment. Detailed risk management positions at December 31, 2004 are presented in Note 14 to the unaudited fourth quarter consolidated financial statements. In 2004, EnCana's financial commodity and currency risk management measures resulted in after- tax cash flow being lower by approximately $700 million, comprised of $540 million on oil hedges and $160 million on gas hedges. In the fourth quarter, financial commodity and currency risk management measures resulted in after-tax cash flow being lower by approximately $260 million, comprised of $190 million on oil hedges and $70 million on gas hedges.

Hedging impact expected to wane in 2005

2004 oil hedging losses were exacerbated by an unprecedented discount between heavy oil and benchmark WTI prices. A review of the company's hedging strategy has resulted in a preference to the use of hedging instruments which provide downside protection, but do not limit upside in a rising price environment. EnCana has purchased WTI put options with a floor price of $40 per barrel for approximately 15 percent of forecast crude oil sales for 2005. EnCana has also purchased NYMEX gas put options with a floor price of $5.46 per thousand cubic feet covering 27 percent of forecast gas sales for 2005. About 19 percent of EnCana's 2005 forecast oil sales is hedged with swaps or collars at approximately $29 per barrel. These arrangements were entered into prior to the tactical change to focus on downside protection. In order to limit the cost of possible extreme oil prices on these oil swaps, EnCana entered into call options for 2005 at an average price of $49.76 per barrel, allowing the company to participate in oil price upside above this level. About 20 percent of EnCana's 2005 forecast gas sales are hedged with swaps at an average price of $6.37 per thousand cubic feet. In addition, 1 percent of EnCana's 2005 forecast gas sales are hedged with collars with a floor price of $2.89 per thousand cubic feet and a ceiling price of $5.37 per thousand cubic feet. Five percent of EnCana's gas sales are hedged with three-way options with a floor price of $5.00 per thousand cubic feet and a ceiling price of $6.69 per thousand cubic feet with a call option purchased at an average price of $7.69, which will allow EnCana to participate in gas price upside above this level. The company has also entered into longer term basis hedges specifically for the purpose of protecting against high U.S. Rockies gas price basis differentials. EnCana will continue to use a variety of hedging instruments for its future hedging programs.

Corporate developments

Quarterly dividend of $0.10 per share declared

EnCana's board of directors has declared a quarterly dividend of $0.10 per share payable on March 31, 2005 to common shareholders of record as of March 15, 2005.

Shareholders to vote regarding two-for-one share split

At the Annual and Special meeting of EnCana's shareholders on April 27, 2005, EnCana's shareholders will be asked to approve the split of EnCana's outstanding common shares on a two-for-one basis. In addition to shareholder approval, the stock split is subject to the receipt of all required regulatory approvals.

If approved by shareholders, and subject to regulatory approvals, each shareholder will receive one additional common share for each common share he or she holds on the record date for the stock split of May 12, 2005. Pursuant to the rules of the Toronto Stock Exchange, EnCana's common shares will commence trading on a subdivided basis at the opening of business on May 10, 2005, which is the second trading day preceding the record date. Also on May 10, 2005, EnCana's common shares listed on the New York Stock Exchange (NYSE) will commence trading with rights entitling holders to an additional common share for each common share held upon the commencement of trading of the common shares on a subdivided basis on the NYSE. The trading of the common shares on a subdivided basis on the NYSE will occur one day after the delivery of share certificates to registered holders of EnCana's common shares. It is anticipated that share certificates representing the additional common shares resulting from the stock split will be mailed to registered common shareholders on or about May 20, 2005.

Normal Course Issuer Bid increased to permit purchase of 10 percent of EnCana's public float

On February 4, the Toronto Stock Exchange (TSX) approved an amendment to EnCana's Normal Course Issuer Bid (Bid), first approved in October 2004, increasing the number of common shares available for purchase from 5 percent of the issued and outstanding shares on October 22, 2004 to 10 percent of the public float on October 22, 2004. There were approximately 462 million common shares outstanding on October 22, 2004. The company estimates that 10 percent of the public float on that date is equal to approximately 46.1 million common shares.

EnCana's planned divestitures of conventional assets in 2005 are expected to bring in substantial funds and the company's capital program is expected to be funded by cash flow. EnCana believes the Bid amendment will provide the opportunity to increase net asset value per share through share purchases.

To date under its current Bid, EnCana has purchased approximately 21.2 million common shares, representing approximately 4.6 percent of the company's outstanding common shares on October 22, 2004, at an average price of US$54.56 per common share. As at January 31, 2005, EnCana had approximately 446 million common shares outstanding. In 2004, approximately 10 million shares were issued upon the exercise of options by employees as part of the company's long-term incentive program. Under the amended Bid, the company is entitled to purchase for cancellation up to an additional 25 million common shares through the expiry of the amended Bid on October 28, 2005. Purchases will be made on the open market through the facilities of TSX in accordance with its policies, and may also be made through the facilities of the NYSE in accordance with its rules. The price to be paid will be the market price at the time of acquisition.

Financial strength

EnCana targets a net debt-to-capitalization ratio between 30 and 40 percent. At December 31, 2004, the company's net debt-to-capitalization ratio was 33:67. EnCana's net debt-to-EBITDA multiple, on a trailing 12-month basis, was 1.4 times.


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