Encana Calls End to Permian Race as Focus Turns to Output
(Bloomberg) -- Encana Corp. Chief Executive Officer Doug Suttles says drillers in Texas’s prolific Permian Basin can no longer impress investors with how much acreage they’re snapping up or how quickly they’re boosting production.
Instead, investors will focus on how profitably companies are able to produce from their current holdings, Suttles said in an interview in New York. Encana, which has spent about four years reworking its portfolio of holdings to four top North American plays, expects to be a leader among its peers on that front, he said.
“The race for the land is kind of over,” Suttles said. “Now it’s what are you going to do with the land.”
Encana expects to increase cash flow about 25 percent a year through 2022, the Calgary-based company said Wednesday in a presentation to investors. Cumulative free cash flow in that period will be about $1.5 billion, assuming oil prices at $50 a barrel. Driving those gains will be a profit margin that expands to roughly $16 per barrel of production in five years, up from about $11 currently, the company said.
For Encana, the key to maximizing production from its land has been a drilling technique it calls cube development, which entails drilling multiple wells in multiple zones simultaneously, rather than drilling the wells piecemeal over a longer period of time.
Encana’s method, while requiring more coordination to accommodate so much activity on a single pad, reduces the problem of the early wells reducing the pressure in a zone and hurting the performance of those drilled later on. The company has drilled as many as 19 wells at a time, whereas common practice among other operators has been to drill four or fewer wells at a time.
Cost Inflation
The company also avoided some of the service-cost inflation that has hurt other operators in the Permian by contracting for its services farther ahead of time and ramping up activity earlier than other drillers, he said. Suttles said the company has made other improvements, such as in water handling and frack-sand procurement, all of which have helped drive Encana’s well costs lower than a year ago, he said.
Encana may further benefit from easing cost pressures as rig counts decline, Suttles said.
“I think we’re through the worst of the inflation phase,” he said. “That’s what we’re seeing in the marketplace. It was pretty intense in the first half of the year.”
So far, investors have largely approved of Encana’s results. The shares have outperformed Canadian peers over the past three months, rising 24 percent while the S&P/TSX energy index rose 3.6 percent. They were up about 3 percent at C$14.72 as of 12:01 p.m. in Toronto, after earlier gaining as much as 4.8 percent.
Top Plays
Encana has transferred its technological advances among its four core holdings, which also include the Eagle Ford in Texas, along with the Montney and Duvernay in Canada. Those four holdings now account for about 90 percent of Encana’s production after it sold natural gas assets in Colorado to a private equity firm for $735 million last month, nearly completing its drive to concentrate its portfolio. Proceeds from the sale were used to improve the company’s balance sheet.
The company also owns a position in the San Juan Basin in New Mexico. While the company hasn’t decided on whether it will develop or sell the holding, it has drilled six wells there, and the results have been promising, Suttles said.
“So far it’s quite encouraging,” Suttles said. “It looks like they’re going to make it a hard decision.”
The extra cash the company starts to generate from its operations isn’t likely to go to early debt repayment, since the company only has about $500 million of debt due in 2019 and the bulk of its borrowings due in 2030 or later, Suttles said. However, all other options are on the table, and the company will likely decide how to use those funds in 2019, he said.
To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Carlos Caminada, Stephen Cunningham.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Weatherford CEO's Rebound Plan Relies On Getting Smaller
- Iran Says Oil Market Is Too Tight For US Zero Exports Target
- China's Squeezed 'Teapots' Eye Petchem Path To Riches
- Baker Hughes: US Drillers Add Oil Rigs For Second Week In Three
- Venezuela Hands China More Oil Presence, But No Mention Of New Funds
- Gunvor CEO Sees Russian Refining Capacity Taking Hit from Drone Strikes
- These Factors Helped Brent Oil Price Break Above $85
- Sinopec Engineering Posts Higher Annual Petrochemicals Revenue
- Imperial Pipeline in Winnipeg Goes Offline for Three Months
- Gaz System to Acquire Gas Storage Poland
- Subsea7 Secures Contract to Service Woodside's Trion
- Adnoc Inks Supply Deal for Ruwais LNG Project with Germany's SEFE
- EIA Boosts USA Crude Oil Production Forecasts
- TotalEnergies to Acquire TLCS Eyeing Bayou Bend CCS Project
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Rystad Looks at the Buzz Around White Hydrogen
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension