EnCana's 3Q06 Cash Flow Reaches US$1.9 billion, or $2.30/share


EnCana Corporation (TSX & NYSE: ECA) continued to generate solid cash flow and earnings during the third quarter of 2006 due to increased heavy oil prices plus steady natural gas production that benefited from favorable natural gas price hedges and fixed basis positions.

"During the first nine months of 2006, our cash flow per share is up 16 percent compared to one year earlier and operating earnings continue to grow. Our resource play strategy is continuing to deliver strong performance toward our core goal - steadily increasing the underlying value of every EnCana share," said Randy Eresman, EnCana's President & Chief Executive Officer. "Although we have slowed our natural gas production growth profile from our original plan, we have achieved year-to-date growth of 5 percent. Our current production is about 3.4 billion cubic feet per day and with the planned start up in early November of the new Steeprock gas plant in British Columbia our gas production should approach 3.5 billion cubic feet per day."

"At a time of commodity price uncertainty and high industry inflation, we believe it is prudent to temporarily reduce our growth objectives and return excess cash to shareholders through continued share buybacks rather than pursue growth at elevated costs. Robust activity in the North American natural gas industry this year has continued to fuel cost inflation for field services, while record gas storage levels have resulted in softer realized prices. In some areas experiencing high inflation and operational inefficiencies, we have reduced our activity levels by releasing our least capital efficient rigs and the associated services. This has resulted in delays in bringing on new production. The released rigs will be replaced by new fit-for-purpose rigs, which are about 25 percent more efficient, resulting in an overall high-grading of our fleet. In total we have about 70 rigs running, which is 55 fewer than one year ago. The number of wells we expect to drill this year is now forecast to reach about 3,650, about 650 less than initially forecast," Eresman said.

Jonah production constrained, wet conditions persist in southern Alberta

At Jonah in Wyoming, production growth is about 50 million cubic feet per day less than forecast due to a combination of operational issues and pipeline capacity restrictions. This volume represents the largest proportion of our company's production shortfall. Operational issues are being resolved and additional gathering pipeline capacity is expected to be added by the second quarter of 2007. EnCana has slowed drilling to help preserve the value of new gas production by timing production increases with planned pipeline expansion. EnCana has reduced its Jonah drilling fleet from 15 to 11 rigs by releasing four of its least-efficient rigs while it awaits delivery of eight new, highly- efficient, fit-for-purpose rigs over the next year. In the plains of southern Alberta, operations in coalbed methane and shallow gas development were slowed by wet summer weather. Unusually-heavy rains in 2005 left the land saturated such that even modest rains this year hampered field work.

Natural gas sales guidance updated

With fewer wells and a slower than forecast production ramp up from the Jonah and southern Alberta projects, 2006 gas production is running slightly below the low end of the company's previous forecast. EnCana has updated its 2006 natural gas sales guidance to between 3.36 billion and 3.40 billion cubic feet per day, representing, at the midpoint, a 5 percent increase over 2005 sales. The forecast for oil and NGLs sales is unchanged at between 155,000 and 160,000 bbls/d. Updated guidance is posted on EnCana's website: www.encana.com.

"In the third quarter, growth from our key resource plays continued at a strong pace, up 12 percent in the past year. In the first nine months, key resource play growth is up about 14 percent," Eresman said. "Despite higher inflation and foreign exchange rates, we are stewarding our 2006 capital investment to be within guidance of between $5.8 billion and $6.1 billion, which includes about $600 million directed to growth at our Foster Creek and Christina Lake oilsands projects."

Higher electricity costs offset by EnCana power plants

While increased electricity prices in Alberta have driven up field operating costs in recent months, the company has a natural hedge due to its ownership in three cogeneration power plants. Although power prices increased third quarter operating costs by about 4 cents per Mcfe compared to the same period in 2005, increased revenue from the company's power plants has offset this cost increase.

Focused on generating strong investment returns and free cash flow

"As we look to 2007, we recognize that winter weather will play a strong role in determining 2007 gas prices and we share investors' concerns for potential price weakness in the short term. At the same time, energy demand and the forward prices for natural gas and oil remain strong. We continue to manage price risk with the use of hedging instruments and we do not plan to aggressively push new production into a high-cost, low-price environment," Eresman said.

"We plan to set our 2007 capital budget in mid December when we will have a better sense of the environment for the coming year and consistent with 2006, we will target a significant stream of free cash flow for 2007," Eresman said. "We have hedged about one-third of our expected 2007 gas production: fixed price contracts on about 975 million cubic feet per day at an average price of $8.73 per Mcf and put options on 240 million cubic feet per day at a strike price of $6.00 per Mcf. For 2007, we plan to be even more focused on maximizing shareholder returns by optimizing capital investment complemented with a sizable divestiture program and continued farm out activity on lands not core to EnCana."

EnCana and ConocoPhillips to create integrated heavy oil business in 2007

On October 5, 2006, EnCana announced the signing of a landmark agreement with ConocoPhillips that will see EnCana become an integrated oil producer, holding a 50 percent interest in two significant U.S. refineries. The two companies agreed to create two 50/50 partnerships, one upstream in Canada and one downstream in the United States. This integrated heavy oil business plans to increase production from two in-situ oilsands projects to about 400,000 bbls/d of bitumen over the next decade and expand processing capacity to 275,000 bbls/d for bitumen at refineries in Wood River, Illinois and Borger, Texas. This transaction, which is subject to the execution of final definitive agreements and regulatory approvals, is expected to close on January 2, 2007.

"Under the agreement, EnCana will own about 175,000 bbls/d of refining capacity effective January 2, 2007, increasing to about 250,000 bbls/d by 2009, in key U.S. markets. This will instantly place EnCana among Canada's major refinery owners while providing options for future upgrader development," Eresman said. "These innovative partnerships will strategically align about two-thirds of our industry-leading oilsands projects with high- quality refineries. Through this integrated business, we expect to increase certainty of execution for our oilsands projects by reducing cost and price risk and increasing confidence in our ability to achieve economic returns under a wide range of world oil prices."

Bitumen production expansions underway at Foster Creek and Christina Lake

Over the next decade, the upstream partnership plans to invest $5.4 billion to grow bitumen production capacity at Foster Creek and Christina Lake from 50,000 bbls/d to approximately 400,000 bbls/d. A Foster Creek expansion currently under construction is expected to take production to about 60,000 bbls/d by early 2007. The next two Foster Creek expansions, 30,000 bbls/d each, are expected to come on stream in late 2008 and 2009 respectively. At Christina Lake, the current expansion is expected to take production to about 18,000 bbls/d in the last half of 2008, which means these near term expansions are expected to take total production to about 138,000 bbls/d before 2010. Subsequent expansions at the two projects are expected to continue growth to the targeted level of 400,000 bbls/d.

IMPORTANT NOTE: EnCana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report sales and reserves on an after-royalties basis. EnCana's Ecuador interests and its natural gas liquids processing business were sold and are discontinued. The company is reporting its natural gas storage business as discontinued because EnCana is in the process of selling it. Total results, which include results from natural gas liquids processing business, Ecuador and natural gas storage, are reported in the company's financial statements included in this news release and in supplementary documents posted on its website - www.encana.com.