EnCana Plans Flexible 2009 Capital Program
EnCana plans a conservative, prudent and flexible capital program in 2009 that is targeting total natural gas and oil production at approximately 2008 levels and advancing the company's multi-year projects. Given the economic uncertainty, EnCana has designed a 2009 capital program with the flexibility to adjust investment by approximately US $500 million, up or down, depending upon how economic circumstances unfold during the year.
At the mid-point of the company's forecasted range, EnCana plans in 2009 to invest about $6.1 billion and expects to generate about $7.7 billion in cash flow and about $1.6 billion in free cash flow. Cash flow could increase with planned divestitures.
"In these challenging economic times, we are highly focused on key business objectives: maintaining financial strength, generating significant free cash flow, further optimizing our capital investments and continuing to pay a stable dividend to shareholders - currently $1.60 per share annualized, which at the current share price results in a yield of about 3.4 percent. This measured investment approach is underpinned by a strong balance sheet and a risk management program that has hedged about two thirds of our expected natural gas production from January to October 2009 at an average price of approximately $9.13 per thousand cubic feet, which is well above the current forward strip," said Randy Eresman, EnCana's President & Chief Executive
Uncertain economy warrants conservative, flexible approach to investment
"EnCana's business model is focused on developing low-risk, long-life and low-cost resource plays. This model positions us very well to deal with the current market uncertainty. We have considerable flexibility in our capital programs, providing us with an opportunity to apply an even higher level of scrutiny to our investment decisions as we move through 2009. Optimizing project returns and long-term value creation will continue to be the focus of all of our investment decisions," Eresman said.
"Depending on market conditions, the company may divest between $500 million and $1 billion of non-core assets. If prices are weak in 2009, we expect to invest less and sell fewer non-core assets, resulting in free cash flow at the lower end of the forecast range. If prices strengthen, we expect to invest more and sell more non-core properties, resulting in free cash flow at the higher end of the forecast range. Regardless, EnCana expects that 2009 cash flow and divestiture proceeds will significantly exceed capital expenditures resulting in free cash flow of between $2.0 billion and $2.7 billion, well in excess of the company's $1.2 billion current annualized dividend," Eresman said.
Investments in key resource plays and multi-year, long-term value creation projects continue
The company plans to invest about $4.5 billion - about 60 percent of 2009 forecast cash flow - to maintain total natural gas and oil production at approximately 2008 levels with investment directed primarily at key resource
plays. EnCana also plans about $1.6 billion of capital investment in long-term production and refining assets - continuing to build the Coker and Refinery Expansion (CORE) project at the Wood River refinery in Illinois, expansions of upstream oil projects in northeast Alberta, development of the Deep Panuke natural gas project offshore Nova Scotia and other long-term upstream projects with substantial future growth potential.
EnCana has a very strong balance sheet. At November 30, 2008, about 82 percent of EnCana's outstanding debt was comprised of long-term, fixed-rate debt with an average remaining term of more than 14 years. Long-term debt maturities in 2009 are $250 million and are $200 million in 2010. In addition, at November 30, 2008, EnCana had $2.6 billion in unused credit facilities.
EnCana targets a net debt to capitalization ratio of between 30 and 40 percent and a net debt to adjusted EBITDA multiple, on a trailing 12-month basis, of 1 to 2 times. EnCana's net debt to capitalization ratio is projected to be 28 percent at the end of 2008 and the net debt to adjusted EBITDA multiple is expected to be 0.6. In 2009 both of these ratios are expected to continue to be at the lower end of the managed range.
Two thirds of expected gas production hedged from January to October 2009
EnCana has hedged about 2.6 billion cubic feet per day (Bcf/d) of expected gas production from January to October 2009 at an average NYMEX equivalent price of about $9.13 per Mcf. This price hedging strategy helps
reduce uncertainty in cash flow during periods of commodity price volatility.
EnCana has also hedged 100 percent of its expected U.S. Rockies basis exposure through 2011 using a combination of downstream transportation and basis hedges, including some hedges that are based on a percentage of NYMEX prices and some hedges that move basis risk to alternative markets downstream.
EnCana updates 2008 guidance to reflect weaker fourth quarter oil prices
EnCana has updated its 2008 guidance for cash flow largely to reflect the dramatically lower Chicago crack spreads and WTI oil prices experienced in the fourth quarter. The combination of the two has reduced realized margins and inventory values in downstream operations by about $300 million. Accordingly, EnCana now expects its 2008 cash flow range to be between $9.4 billion and $9.6 billion, or $12.50 to $12.80 per share. The changing market conditions have also resulted in a reduction of EnCana's operating and administrative cost guidance.
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