Encana's (TSX:ECA) (NYSE:ECA) performance through the third quarter, coupled with significant oil and condensate growth through October in the Permian and Montney, reflects the strong execution of its strategy and five-year plan. Driven by innovation, low costs and a higher value production mix, Encana expects to grow its non-GAAP corporate margin to around $11 per barrel of oil equivalent (BOE) in 2017. The company is firmly on track to meet or beat its 2017 targets and expects core asset production growth to be at the top end of guidance. Highlights include:
- Third quarter net earnings of $294 million, cash from operating activities of $357 million and non-GAAP cash flow of $270 million.
- Year-to-date non-GAAP corporate margin of $10.77 per BOE; on track for full-year corporate margin of around $11 per BOE, up over 65 percent from year-end 2016.
- Third quarter total production of 284,000 barrels of oil equivalent per day (BOE/d); October total production was more than 325,000 BOE/d, an increase of 14 percent from the third quarter.
- Third quarter core asset production of 248,000 BOE/d; in October, this increased by 22 percent to over 302,000 BOE/d. Encana expects its core assets will deliver around 30 percent production growth from the fourth quarter of 2016 to the fourth quarter of 2017.
- Third quarter liquids production of 127,500 barrels per day (bbls/d), including oil and condensate of 103,100 bbls/d; in October, liquids production increased by 18 percent to over 150,000 bbls/d and oil and condensate production increased by 16 percent to 120,000 bbls/d.
- Permian production in October averaged 80,000 BOE/d, up 25 percent from the third quarter and ahead of its fourth quarter 2017 target of 75,000 BOE/d.
- Montney production in October totaled 147,000 BOE/d, up 32 percent from the third quarter, with liquids production of more than 25,000 bbls/d, up 42 percent from the third quarter.
- During Investor Day, Encana updated its five-year plan and expects its non-GAAP return on capital employed to climb to between 10 and 15 percent, a 25 percent compound annual growth rate in non-GAAP cash flow and approximately $1.5 billion of cumulative non-GAAP free cash flow.
"Driven by innovation and strong execution, each of our core assets is firmly on track to meet or beat its 2017 targets," said Doug Suttles, Encana President & CEO. "Consistent with our plan, the Permian and Montney are delivering significant oil and condensate growth in the fourth quarter, driving continued corporate margin expansion and setting the stage for a strong finish to the year."
"Our financial and operational performance demonstrates our strategy is working and that we can deliver quality corporate returns through the commodity cycle," added Suttles. "We are generating significant momentum for 2018 and are strongly positioned to deliver leading returns, cash flow growth and free cash flow through our five-year plan."
"Our financial and operational performance demonstrates our strategy is working and that we can deliver quality corporate returns through the commodity cycle," added Suttles. "We are generating significant momentum for 2018 and are strongly positioned to deliver leading returns, cash flow growth and free cash flow through our five-year plan."
Third quarter results: Firmly on track to meet or beat 2017 deliverables
Encana generated cash from operating activities of $357 million in the quarter compared to $186 million in the third quarter of 2016. Non-GAAP cash flow was $270 million, up from $252 million in the same period last year. Encana delivered third quarter net earnings of $294 million, or $0.30 per share. Non-GAAP operating earnings were $24 million.
Encana's third quarter production totaled 284,000 BOE/d. This included total liquids production of 127,500 bbls/d, of which more than 80 percent was high-value oil and condensate. Third quarter liquids volumes contributed 45 percent of total production, up from 35 percent of total production in the third quarter of 2016.
The company's core assets contributed 248,000 BOE/d, representing 87 percent of total third quarter production, despite impacts from Hurricane Harvey and third-party western Canadian natural gas curtailments. Third quarter natural gas production averaged 939 million cubic feet per day (MMcf/d). The reduction from the second quarter was largely the result of the sale of Piceance, which closed on July 26, 2017.
Encana's third quarter production totaled 284,000 BOE/d. This included total liquids production of 127,500 bbls/d, of which more than 80 percent was high-value oil and condensate. Third quarter liquids volumes contributed 45 percent of total production, up from 35 percent of total production in the third quarter of 2016.
The company's core assets contributed 248,000 BOE/d, representing 87 percent of total third quarter production, despite impacts from Hurricane Harvey and third-party western Canadian natural gas curtailments. Third quarter natural gas production averaged 939 million cubic feet per day (MMcf/d). The reduction from the second quarter was largely the result of the sale of Piceance, which closed on July 26, 2017.
Innovation and execution performance: Delivering high-margin production growth
Through the continual refinement of its cube development and advanced completion designs, Encana is maximizing returns and resource recovery. Consistent with its plan, and driven by strong performance in the Permian and Montney, Encana delivered significant oil and condensate growth through October. Each of the company's core assets is expected to meet or exceed its 2017 targets.
In the Permian, cube development and the latest high-intensity completion designs are delivering leading well performance. In October, production averaged 80,000 BOE/d, up 25 percent from the third quarter and well ahead of its fourth quarter 2017 target of 75,000 BOE/d. The Permian is on track to deliver 50 percent production growth between the fourth quarter of 2016 and the fourth quarter of 2017.
In the Montney, precision well targeting and advanced completions are driving well productivity. Saturn, the third facility that supports Encana's condensate focused growth plan, started up on November 1, well ahead of plan and under budget. In October, Montney liquids production was over 25,000 bbls/d, up 42 percent from the third quarter. Driven by increased liquids, Encana's margin in the Montney is on track to increase by over 50 percent from the fourth quarter of 2016 to the fourth quarter of 2017.
The Eagle Ford continues to outperform its 2017 targets, maintain production and generate free cash flow. Advanced completions are delivering some of the highest productivity wells in the basin. In October, Eagle Ford production averaged 51,000 BOE/d including liquids volumes of 41,000 bbls/d.
Encana delivered record Duvernay production in the third quarter and its first advanced completion pilot in the play is delivering encouraging early well results. October production averaged over 24,000 BOE/d including liquids of over 12,000 bbls/d, up 16 percent and 22 percent respectively from the third quarter.
Balance sheet strength, lower costs and quality corporate returns
In the Permian, cube development and the latest high-intensity completion designs are delivering leading well performance. In October, production averaged 80,000 BOE/d, up 25 percent from the third quarter and well ahead of its fourth quarter 2017 target of 75,000 BOE/d. The Permian is on track to deliver 50 percent production growth between the fourth quarter of 2016 and the fourth quarter of 2017.
In the Montney, precision well targeting and advanced completions are driving well productivity. Saturn, the third facility that supports Encana's condensate focused growth plan, started up on November 1, well ahead of plan and under budget. In October, Montney liquids production was over 25,000 bbls/d, up 42 percent from the third quarter. Driven by increased liquids, Encana's margin in the Montney is on track to increase by over 50 percent from the fourth quarter of 2016 to the fourth quarter of 2017.
The Eagle Ford continues to outperform its 2017 targets, maintain production and generate free cash flow. Advanced completions are delivering some of the highest productivity wells in the basin. In October, Eagle Ford production averaged 51,000 BOE/d including liquids volumes of 41,000 bbls/d.
Encana delivered record Duvernay production in the third quarter and its first advanced completion pilot in the play is delivering encouraging early well results. October production averaged over 24,000 BOE/d including liquids of over 12,000 bbls/d, up 16 percent and 22 percent respectively from the third quarter.
Balance sheet strength, lower costs and quality corporate returns
Strong execution performance and continued efficiencies have lowered Encana's costs and strengthened its resilience. The company is on track to deliver a 10 percent capital productivity improvement by year-end. Year to date, Encana has reduced transportation and processing costs by $98 million and operating expense (excluding long-term incentive costs) by $56 million, compared to 2016.
Encana's strong balance sheet and liquidity position it to manage commodity price volatility and deliver quality corporate returns throughout the commodity cycle. By year-end, the company expects net debt to adjusted EBITDA ratio will be about two times and to have total liquidity of over $5 billion.
In 2018, Encana expects its total capital and cash flow to be in balance. Through its five-year plan, which is built on flat $50 WTI and $3 NYMEX natural gas prices, Encana expects its return on capital employed will climb to between 10 and 15 percent, to deliver approximately 25 percent compound annual growth in non-GAAP cash flow and generate around $1.5 billion of cumulative non-GAAP free cash flow.
Managing risk, preserving optionality and creating value
Encana's strong balance sheet and liquidity position it to manage commodity price volatility and deliver quality corporate returns throughout the commodity cycle. By year-end, the company expects net debt to adjusted EBITDA ratio will be about two times and to have total liquidity of over $5 billion.
In 2018, Encana expects its total capital and cash flow to be in balance. Through its five-year plan, which is built on flat $50 WTI and $3 NYMEX natural gas prices, Encana expects its return on capital employed will climb to between 10 and 15 percent, to deliver approximately 25 percent compound annual growth in non-GAAP cash flow and generate around $1.5 billion of cumulative non-GAAP free cash flow.
Managing risk, preserving optionality and creating value
Encana's multi-basin portfolio, short-cycle capital program and robust risk management strategy provide significant flexibility and position the company to manage risk and protect value. Encana's risk management reflects its commitment to delivering leading returns through the commodity cycle.
As at October 31, Encana has hedged approximately 88,000 bbls/d of expected oil and condensate production for the balance of the year using a variety of structures at an average price of $53.69 per barrel (bbl). The company has hedged approximately 865 MMcf/d of expected 2017 natural gas production for the balance of the year using a variety of structures at an average price of $3.02 per thousand cubic feet (Mcf).
For 2018, the company has hedged approximately 88,000 bbls/d of expected oil and condensate production at an average price of $53.23 per bbl and approximately 660 MMcf/d of expected natural gas production at an average price of $3.07 per Mcf.
Dividend Declared
On November 7, 2017, the Board declared a dividend of $0.015 per share payable on December 29, 2017 to common shareholders of record as of December 15, 2017.
As at October 31, Encana has hedged approximately 88,000 bbls/d of expected oil and condensate production for the balance of the year using a variety of structures at an average price of $53.69 per barrel (bbl). The company has hedged approximately 865 MMcf/d of expected 2017 natural gas production for the balance of the year using a variety of structures at an average price of $3.02 per thousand cubic feet (Mcf).
For 2018, the company has hedged approximately 88,000 bbls/d of expected oil and condensate production at an average price of $53.23 per bbl and approximately 660 MMcf/d of expected natural gas production at an average price of $3.07 per Mcf.
Dividend Declared
On November 7, 2017, the Board declared a dividend of $0.015 per share payable on December 29, 2017 to common shareholders of record as of December 15, 2017.