EnCana Second Quarter Cash Flow Exceeds US $2.5 Billion

EnCana is raising full year cash flow guidance to between $10.20 and $10.70 per share and natural gas production increases 4 percent to 3.5 billion cubic feet per day Solid natural gas and oilsands production growth, stronger realized gas prices and robust refining margins all contributed to substantial increases in EnCana Corporation's (TSX & NYSE: ECA) cash flow and operating earnings in the second quarter of 2007.

"Now transformed into a leading integrated producer of North American unconventional natural gas and in-situ oilsands, our company is hitting its stride. Our diverse portfolio of natural gas, oil and oilsands resource plays and our interests in two refineries are generating strong financial and operating performance. Second quarter cash flow and operating earnings are significantly higher than one year ago, production is on track to meet our full-year targets and capital costs are tracking below budget at mid-year. Our sustainable low-risk business model is delivering on our expectations and we are well positioned to create strong, long-term performance," said Randy Eresman, EnCana's President & Chief Executive Officer.

"Based on our expectations for the remainder of the year and the strong cash flow performance to date from our upstream operations and the larger-than-expected contributions from our integrated oilsands business, we are raising our annual guidance for total cash flow to a range of $7.8 billion to $8.2 billion. Also, having already completed a significant portion of our planned share purchase program, cash flow per share guidance is now between $10.20 and $10.70, representing a forecast growth range of 19 to 25 percent compared to 2006," Eresman said.

Second Quarter 2007 Highlights

------------------------------

(all comparisons are to the second quarter of 2006)

Financial - US$

  • Cash flow per share diluted increased 55 percent to $3.33, or $2.55 billion (includes $0.17 billion, or 23 cents per share, of tax recoveries due to legislative changes)
  • Operating earnings per share diluted up 84 percent to $1.80, or $1.38 billion (includes $0.23 billion, or 30 cents per share, of tax recoveries due to legislative changes)
  • Net earnings per share diluted down 26 percent to $1.89, or $1.45 billion (in the second quarter of 2006 EnCana recorded about $1.3 billion of non-operating gains, or $1.57 per share)
  • Integrated oilsands business generated $500 million of operating cash flow
  • Core capital investment in continuing operations down 28 percent to $1.17 billion
  • Generated $1.38 billion of free cash flow (as defined in Note 1 on page 7)
  • Purchased approximately 12 million EnCana shares at an average price of $59.23 under the Normal Course Issuer Bid

Operating Upstream

  • Natural gas production increased 4 percent to 3.51 billion cubic feet per day (Bcf/d), up 14 percent per share
  • Oil and natural gas liquids (NGLs) production up 1 percent on a pro forma basis to more than 133,000 barrels per day (bbls/d), up 10 percent per share (see pro forma note 1, Production & Drilling Summary, pg. 3)
  • Total natural gas and liquids production increased 4 percent on a pro forma basis to 4.31 billion cubic feet of gas equivalent per day (Bcfe/d), up 13 percent per share
  • Key natural gas resource play production up 12 percent
  • Grew gross integrated oilsands production 43 percent to 56,000 bbls/d (28,000 bbls/d net to EnCana) at Foster Creek and Christina Lake
  • Operating and administrative costs of $1.17 per thousand cubic feet equivalent (Mcfe) in line with guidance; an increase of 14 cents per Mcfe compared to one year earlier, made up of 8 cents due to increased long term compensation costs resulting from a higher EnCana share price, 2 cents due to foreign exchange and 4 cents due to inflation, energy and other activity-related costs
  • Operating Downstream

  • Refined products production averaged 421,000 bbls/d (210,500 bbls/d net to EnCana)
  • Refinery crude utilization of 88 percent is lower than the first quarter of 2007 due to the planned turnaround and coker startup at the Borger refinery. Year-to-date utilization is above expectations at 92 percent largely due to a strong utilization rate of 100 percent at the Wood River refinery.
  • New 25,000 bbls/d Borger coker is operating well and is processing Canadian heavy oil blended from bitumen
  • Natural gas production on track with 2007 forecast

    Natural gas production in the second quarter rose steadily with strong year-over-year increases in a number of key resource plays - 49 percent in East Texas, 37 percent in coalbed methane (CBM) and 31 percent in Cutbank Ridge. EnCana's second largest resource play, Jonah, increased production 16 percent compared to one year ago. Gas production is currently about 3.5 Bcf/d, on track to achieve full-year guidance of 3.46 Bcf/d.

    Integrated oilsands business has a strong start in 2007

    The financial performance of EnCana's emerging integrated oilsands business has been well above expectations to date, largely due to stronger than anticipated refining margins. The second quarter U.S. Gulf Coast 3-2-1 crack spread averaged more than $24 per barrel, with the May average peaking above $28 per barrel. Second quarter operating cash flow from the integrated oilsands business was $500 million.

    During the first quarter of 2007, the integrated oilsands business delivered about 9 percent of EnCana's total operating cash flow. After six months, that share has increased to about 14 percent, a notable rise to $661 million, which is more than the company's original full-year forecast of between $550 million and $650 million. As a result, EnCana has increased its 2007 guidance for integrated oilsands operating cash flow to $1.1 billion. Updated guidance is posted on the company's website www.encana.com.

    "Our shareholders have benefited from refinery margins that are well above historical levels. While those margins are expected to soften in the latter half of 2007 following the end of the summer driving season, they are likely to stay strong for the foreseeable future due to limited spare refining capacity, continued strong transportation fuels demand and a stable economy. The financial performance of our integrated oilsands business in this, its inaugural year, has exceeded our expectations and the operating performance is tracking well against our objectives and targets - a great start to our newly created partnership with ConocoPhillips," Eresman said.

    IMPORTANT NOTE: EnCana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report production, sales and reserves on an after-royalties basis. The company's financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP).

    
    
        <<
        -------------------------------------------------------------------------
                       Financial Summary - Total Consolidated
        -------------------------------------------------------------------------
        (for the period ended
         June 30)                                           6       6
        ($ millions, except per      Q2      Q2      %    months  months    %
         share amounts)             2007    2006  change   2007    2006   change
        -------------------------------------------------------------------------
        Cash flow(1)               2,549   1,815     +40   4,301   3,506     +23
          Per share diluted         3.33    2.15     +55    5.56    4.10     +36
        -------------------------------------------------------------------------
        Operating earnings(1)      1,376     824     +67   2,234   1,518     +47
          Per share diluted         1.80    0.98     +84    2.89    1.77     +63
        -------------------------------------------------------------------------
        Net earnings               1,446   2,157     -33   1,943   3,631     -46
          Per share diluted         1.89    2.55     -26    2.51    4.24     -41
        -------------------------------------------------------------------------
        Core capital investment
         from continuing
         operations                1,172   1,632     -28   2,655   3,578     -26
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
                 Earnings Reconciliation Summary - Total Consolidated
        -------------------------------------------------------------------------
        Net earnings from
         continuing operations     1,446   1,593      -9   1,943   3,065     -37
        Net earnings from
         discontinued operations       -     564     n/a       -     566     n/a
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        Net earnings (loss)        1,446   2,157     -33   1,943   3,631     -46
        (Add back losses &
         deduct gains)
        Unrealized mark-to-market
         hedging gain (loss),
         after-tax                    47     160     n/a    (376)    990     n/a
    
        Unrealized foreign exchange
         gain (loss) on translation
         of U.S. dollar Notes issued
         from Canada, after-tax      (14)    134     n/a     (11)    131     n/a
    
        Future tax recovery due
         to Canada and Alberta tax
         rates reductions             37     457     n/a      37     457     n/a
    
        Gain on discontinuance,
         after-tax                     -     582     n/a      59     535     n/a
        -------------------------------------------------------------------------
        Operating earnings(1)      1,376     824     +67   2,234   1,518     +47
          Per share diluted         1.80    0.98     +84    2.89    1.77     +63
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        (1) Cash flow and Operating earnings are non-GAAP measures as defined in
            Note 1 on page 7.
    
    
        -------------------------------------------------------------------------
                            Production & Drilling Summary
        -------------------------------------------------------------------------
                                 Total Consolidated
        -------------------------------------------------------------------------
        (for the period ended                               6       6
         June 30)                    Q2     Q2       %    months  months    %
        (After royalties)           2007  2006(1) change   2007   2006(1) change
        -------------------------------------------------------------------------
        Natural Gas (MMcf/d)       3,506   3,361      +4   3,454   3,352      +3
        -------------------------------------------------------------------------
          Natural gas production
           per 1,000 shares (Mcf)    421     369     +14     819     723     +13
        -------------------------------------------------------------------------
        Oil and NGLs (Mbbls/d)       133     132      +1     132     163     -19
        -------------------------------------------------------------------------
          Oil and NGLs production
           per 1,000 shares (Mcfe)    96      87     +10     188     211     -11
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        Total Production
         (MMcfe/d)                 4,306   4,154      +4   4,246   4,328      -2
        -------------------------------------------------------------------------
          Total per 1,000 shares
           (Mcfe)                    517     456     +13   1,007     934      +8
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        Net wells drilled            569     558      +2   1,833   1,836       -
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------

    (1) 2006 information has been adjusted on a pro forma basis to reflect the integrated oilsands transaction; the first six months of 2006 includes production from EnCana's Ecuador assets, which were sold in the first quarter 2006.

    Key natural gas resource play production up 12 percent from past year.

    Second quarter 2007 natural gas production from key North American resource plays increased 12 percent to 2.67 Bcf/d compared to 2.38 Bcf/d in the second quarter of 2006. This was driven mainly by double-digit production increases in six of the company's nine gas resource plays, led by East Texas, CBM in central and southern Alberta, Cutbank Ridge in northeast British Columbia, Bighorn in west-central Alberta, Jonah in Wyoming and the Barnett Shale play in the Fort Worth basin. Gross oilsands production from Foster Creek and Christina Lake was up 43 percent to about 56,000 bbls/d (about 28,000 bbls/d net to EnCana). Overall, second quarter gas and oil resource play production increased 8 percent in the past year (13 percent on a pro forma basis as reflected in the table below).

    
                    Growth from key North American resource plays
    
        -------------------------------------------------------------------------
                                           Daily Production
                      -----------------------------------------------------------
        Resource Play        2007                        2006                2005
                      -----------------------------------------------------------
        (After                            Full                               Full
         royalties)   YTD     Q2     Q1   Year     Q4     Q3     Q2     Q1   Year
        -------------------------------------------------------------------------
        Natural Gas
         (MMcf/d)
          Jonah       514    523    504    464    487    455    450    461    435
          Piceance    342    349    334    326    335    331    324    316    307
          East Texas  121    139    103     99     95    106     93     99     90
          Fort Worth  115    124    106    101     99    104    108     93     70
          Greater
           Sierra     202    219    186    213    212    209    224    208    219
          Cutbank
           Ridge      218    226    210    170    199    167    173    140     92
          Bighorn     109    115    104     91     99     97     95     72     55
          CBM(1)      248    245    251    194    211    209    179    177    112
          Shallow
           Gas(2)     732    729    735    739    737    734    730    756    765
        -------------------------------------------------------------------------
        Total
         natural gas
         (MMcf/d)   2,601  2,669  2,533  2,397  2,474  2,412  2,376  2,322  2,145
        -------------------------------------------------------------------------
        Oil (Mbbls/d)
          Foster
           Creek(3)    23     25     20     18     21     19     16     18     14
          Christina
           Lake(3)      3      3      3      3      3      3      3      3      3
          Pelican
           Lake(4)     23     23     23     24     20     23     22     29     26
        -------------------------------------------------------------------------
        Total oil
         (Mbbls/d)     49     51     46     45     44     45     41     50     43
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        Total
         (MMcfe/d)  2,892  2,972  2,811  2,667  2,736  2,680  2,624  2,624  2,403
        -------------------------------------------------------------------------
        % change
         from prior
         period              5.7    2.7   11.0    2.1    2.1      -   -2.9
        -------------------------------------------------------------------------
        (1) CBM integrated volumes were restated in 2006 to report commingled
            volumes from the coal and sand intervals based on regulatory
            approval.
        (2) Shallow Gas volumes were restated in the first quarter 2007 to report
            commingled volumes from multiple zones within the same geographic
            area based upon regulatory approval.
        (3) Foster Creek and Christina Lake volumes in 2006 and 2005 were
            restated in the first quarter 2007 on a pro forma basis to reflect
            the integrated oilsands transaction.

        (4) Pelican Lake reached royalty payout in April 2006.
    
    
               Drilling activity in key North American resource plays
    
        -------------------------------------------------------------------------
                                           Net Wells Drilled
                      -----------------------------------------------------------
        Resource Play        2007                        2006                2005
                      -----------------------------------------------------------
                                          Full                               Full
                      YTD     Q2     Q1   Year     Q4     Q3     Q2     Q1   Year
        -------------------------------------------------------------------------
        Natural Gas
          Jonah        81     42     39    163     41     48     48     26    104
          Piceance    137     72     65    220     50     48     59     63    266
          East Texas   18     11      7     59     11     12     17     19     84
          Fort Worth   43     29     14     97     19     22     27     29     59
          Greater
           Sierra      55     32     23    115      5     16     34     60    164
          Cutbank
           Ridge       52     25     27    116     19     35     36     26    135
          Bighorn      37      9     28     52      7      7     18     20     51
          CBM(1)      426     18    408    729    157    156     35    381  1,245
          Shallow
           Gas(2)     657    241    416  1,310    389    475    217    229  1,389
        -------------------------------------------------------------------------
        Oil
          Foster
           Creek(3)     9      1      8      3      -      -      -      3     20
          Christina
           Lake(3)      2      2      -      1      -      -      -      1      -
          Pelican
           Lake         -      -      -      -      -      -      -      -     52
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        Total       1,517    482  1,035  2,865    698    819    491    857  3,568
        -------------------------------------------------------------------------
        -------------------------------------------------------------------------
        (1) CBM integrated net wells drilled were restated in 2006 to report
            commingled volumes from the coal and sand intervals based on
            regulatory approval.
        (2) Shallow Gas net wells drilled were restated in the first quarter 2007
            as a result of reporting commingled volumes from multiple zones
            within the same geographic area based upon regulatory approval.
        (3) Foster Creek and Christina Lake net wells drilled in 2006 and 2005
            were restated in the first quarter 2007 on a pro forma basis to
            reflect the integrated oilsands transaction.

        -------------------------------------------------------------------------
                   Second quarter 2007 natural gas and oil prices
        -------------------------------------------------------------------------
                                                            6       6
                                     Q2      Q2      %    months  months    %
                                    2007    2006  change   2007    2006   change
        -------------------------------------------------------------------------
        Natural gas
        ($/Mcf, realized prices
         include hedging)
        NYMEX                       7.55    6.78     +11    7.16    7.88      -9
        EnCana Realized Gas Price   7.62    6.50     +17    7.43    6.82      +9
        -------------------------------------------------------------------------
        Oil and NGLs
        ($/bbl, realized prices
         include hedging)
        WTI                        65.02   70.72      -8   61.68   67.13      -8
        Western Canadian Select
         (WCS)                     45.84   53.17     -14   43.85   43.98       0
        Differential WTI/WCS       19.18   17.55      +9   17.83   23.15     -23
        EnCana Realized Liquids
         Price                     45.47   49.01      -7   44.02   39.66     +11
        -------------------------------------------------------------------------
        U.S. Gulf Coast 3-2-1
         Crack Spread              24.28   17.26     +41   17.17   12.77     +34
        -------------------------------------------------------------------------

    Price risk management

    Risk management positions at June 30, 2007 are presented in Note 19 to the unaudited Interim Consolidated Financial Statements. In the second quarter of 2007, EnCana's commodity price risk management measures resulted in realized gains of approximately $246 million after-tax, composed of a $256 million gain on gas hedges and a $10 million loss on oil hedges.

    About 0.7 Bcf/d of 2008 gas production hedged at $8.56 per Mcf

    EnCana has hedged about 0.7 billion cubic feet per day of expected 2008 gas production, at a price of $8.56 per Mcf. For the last half of 2007, EnCana has about 1.8 Bcf/d of gas production with downside price protection, composed of 1.59 Bcf/d under fixed price contracts at an average NYMEX equivalent price of $8.58 per Mcf and 240 million cubic feet per day with put options at a NYMEX equivalent strike price of $6.00 per Mcf. EnCana has hedged 23,000 bbls/d of 2008 oil production at a price of WTI $70.13 per bbl. EnCana also has about 126,000 bbls/d of 2007 oil production with downside price protection, composed of 34,500 bbls/d under fixed price contracts at an average West Texas Intermediate (WTI) price of $64.40 per bbl, plus put options on 91,500 bbls/d at an average strike price of WTI $55.34 per bbl. This price hedging strategy helps reduce uncertainty in cash flow during periods of commodity price volatility.

    North American natural gas prices are impacted by volatile pricing disconnects caused primarily by transportation constraints between producing regions and consuming regions. These price discounts are called basis differentials. For 2007 EnCana has hedged 100 percent of its U.S. Rockies basis exposure using a combination of downstream transportation and basis hedges. The basis hedges were transacted at an annual average differential of NYMEX less $0.67 per Mcf. During the second quarter of 2007 the U.S. Rockies-NYMEX natural gas price differential averaged $3.70 per Mcf. In Canada for 2007, EnCana has hedged 33 percent of its AECO basis differential at $0.72 per Mcf. In the second quarter of 2007, the AECO basis differential averaged $0.90 per Mcf. During the second quarter, EnCana's basis hedging resulted in a realized gain of about $306 million. EnCana has an additional 32 percent of Canadian basis differential subject to transport and aggregator contracts.

    Corporate developments

    ----------------------

    Quarterly dividend of 20 cents per share approved

    EnCana's board of directors has approved a quarterly dividend of 20 cents per share, which is payable on September 28, 2007 to common shareholders of record as of September 14, 2007.

    EnCana Normal Course Issuer Bid purchases

    Through the first six months of 2007, EnCana has purchased 35.4 million shares at an average share price of US$51.10 under the company's Normal Course Issuer Bid. This represents about 4.6 percent of shares outstanding as at December 31, 2006. As at June 30, 2007, there were approximately 753 million common shares issued and outstanding. During 2007, EnCana expects to purchase about 5 percent of the shares outstanding as of the start of the year. The company plans to fund Normal Course Issuer Bid purchases with cash flow and proceeds from divestitures.

    Financial strength

    ------------------

    EnCana maintains a strong balance sheet, targeting a net debt-to-capitalization ratio between 30 and 40 percent. At June 30, 2007, the company's net debt-to-capitalization ratio was 29:71. EnCana's net debt-to-adjusted-EBITDA multiple, on a trailing 12-month basis, was 0.8 times at the end of the second quarter. The company expects its net debt-to-capitalization ratio to remain at the lower end of the targeted range.

    In the second quarter of 2007, EnCana invested $1,172 million of capital in continuing operations. Net divestitures were $148 million, resulting in net capital investment in continuing operations of $1,024 million.

    Events  SUBSCRIBE TO OUR NEWSLETTER

    Our Privacy Pledge
    SUBSCRIBE


    Most Popular Articles


    From the Career Center
    Jobs that may interest you
    Billing Manager
    Expertise: Accounting
    Location: Houston, TX
     
    Business Development Director - Midstream Services
    Expertise: Business Development|Operations Management
    Location: Houston, TX
     
    US Houston: Hyperion Financial Management Admin.
    Expertise: Accounting|Financial Analyst
    Location: Houston, TX
     
    search for more jobs

    Brent Crude Oil : $55.86/BBL 0.73%
    Light Crude Oil : $52.64/BBL 0.51%
    Natural Gas : $3.42/MMBtu 0.00%
    Updated in last 24 hours