Strong second quarter operational performance helped Encana (TSX: ECA) (NYSE: ECA) deliver its seventh consecutive quarterly increase in liquids volumes since launching its strategy to grow high-margin production. A focused and front-end loaded capital program has positioned the company to accelerate liquids production growth in the second half of 2015.
"Following our successful portfolio transformation in 2014, we continue to lower costs, improve well performance and increase well inventory in our four most strategic assets," said Doug Suttles, Encana President & CEO. "We exited the second quarter with significant operational momentum and we expect to accelerate liquids growth through the second half of the year."
Second quarter liquids production increased more than five percent over the previous quarter, largely attributable to continued organic growth in the company's Eagle Ford and Permian positions. Second quarter natural gas production of approximately 1.6 billion cubic feet per day (Bcf/d) reflects a 16 percent decrease compared to the previous quarter, mainly due to divestitures, the company's seasonal production strategy for its Deep Panuke platform and takeaway restrictions in the Montney.
Total company production averaged 389,000 (BOE/d) with Encana's four strategic assets contributing approximately 223,000 BOE/d or 57 percent. The company expects its Permian, Eagle Ford, Duvernay and Montney assets will contribute an average of approximately 270,000 BOE/d or 65 percent of total production during the fourth quarter of 2015.
"Through our culture of innovation, we continue to identify and seize opportunities to enhance our performance and make our four most strategic assets bigger, better and more efficient," said Suttles. "Our core assets are located in the heart of four of the highest netback basins in North America and are delivering strong returns through the current commodity price cycle."
Consistent with its strategy to grow high-margin production, the company expects to focus its remaining 2015 capital budget on its four most strategic assets. Based on assumptions of $50 per barrel (bbl) WTI oil prices and NYMEX natural gas prices of $3 per million British thermal units (MMBtu), Encana expects to realize average operating margins of over $25 per BOE in the Permian, Eagle Ford and Duvernay, and $1.15 per thousand cubic feet equivalent (Mcfe) in the Montney.
Encana remains on track to deliver its 2015 cash flow guidance of between $1.4 billion and $1.6 billion. The company generated second quarter cash flow of $181 million or $0.22 per share; an operating loss of $167 million or $0.20 per share; and a net loss of $1.6 billion or $1.91 per share primarily due to a $1.3 billion non-cash, after-tax ceiling test impairment. Year-to-date, Encana has generated $676 million in cash flow or $0.85 per share; an operating loss of $148 million or $0.19 per share; and net loss of approximately $3.3 billion or $4.15 per share, largely attributable to non-cash, after-tax ceiling test impairments of $2.6 billion.
Encana is on track to fully fund its 2015 capital program and dividend with anticipated cash flow and the proceeds from previously announced and completed divestitures. In addition, the company continued streamlining its organization during the second quarter to align its structure with its transformed portfolio and disciplined capital program.
Encana's risk management program - additional oil hedges secured during the second quarter At June 30, 2015, Encana has hedged approximately 1,000 MMcf/d of expected July to December 2015 natural gas production using NYMEX fixed price contracts at an average price of $4.29 per Mcf. In addition, Encana has hedged approximately 59.4 thousand barrels per day (Mbbls/d) of expected July to December 2015 oil production using WTI fixed price contracts at an average price of $61.96 per bbl and approximately 38 Mbbls/d of expected 2016 oil production at an average price of $62.83 per bbl.