Encana Delivers Strong Third Quarter Financial and Operational Performance; Significant Liquids Growth Driving Margin Expansion and Returns

Posted by OilVoice Press - OilVoice


Encana delivered strong financial performance in the third quarter driven by significant liquids growth, high realized pricing and continued efficiencies. Financial and operating highlights from the quarter include:

  • net earnings of $39 million
  • cash from operating activities of $885 million, up 148 percent year-over-year
  • non-GAAP free cash flow of $66 million; company is on track to generate full-year non-GAAP free cash flow in 2018, one year earlier than expected in its five-year plan
  • non-GAAP cash flow of $589 million, up 118 percent year-over-year
  • non-GAAP cash flow margin of $16.93 per barrel of oil equivalent (BOE), up 64 percent year-over-year; company expects full-year average non-GAAP cash flow margin of more than $16 per BOE
  • liquids production of 178,700 barrels per day (bbls/d), up 40 percent year-over-year and 15 percent from the previous quarter; liquids made up 47 percent of total third quarter production and 46 percent year-to-date, with high-value oil and condensate making up more than 75 percent of total liquids volumes
  • total production of 378,200 barrels of oil equivalent per day (BOE/d), up 33 percent year-over-year
  • Permian production up 54 percent year-over-year to 98,500 BOE/d; current production over 100,000 BOE/d
  • Montney liquids volumes up 151 percent year-over-year and on track with fourth quarter target of 55,000 bbls/d to 65,000 bbls/d; current liquids production about 55,000 bbls/d
  • operational efficiencies, such as decreased drilling and completion cycle times, along with proactive supply chain management, continuing to largely offset inflation with upstream operating expense and transportation and processing costs down 10 percent and nine percent respectively from the second quarter
  • announced agreement to sell San Juan assets for approximately $480 million on October 1

Operational performance: Core assets delivering non-GAAP free operating cash flow

Permian: Cube development delivering efficient execution with record production

  • total production of 98,500 BOE/d, including 61,900 bbls/d of oil, up 54 and 60 percent respectively year-over-year
  • current production exceeding 100,000 BOE/d
  • strong performance from three Midland County cubes delivering an average 30-day initial production rate of 1,475 BOE/d including 1,200 bbls/d of oil
  • operational efficiencies, including use of local sand and recycled water, continue to offset inflation

Montney: Liquids-focused program delivering high-value growth

  • liquids production of 44,200 bbls/d, up 151 percent year-over-year and 23 percent from the second quarter; total production of 200,600 BOE/d
  • current liquids production of about 55,000 bbls/d; on track to deliver fourth quarter liquids production between 55,000 and 65,000 bbls/d
  • Pipestone Liquids Hub online in September, ahead of schedule, supporting condensate growth plan
  • lowered Pipestone drilling and completion costs by 25 percent compared to 2017 average

Eagle Ford and Duvernay: Delivering high return growth

  • combined production of 65,800 BOE/d, up 12 percent from second quarter
  • strong results from Graben wells in Eagle Ford with average 30-day initial production rates of 1,200 BOE/d, with about 90 percent being oil
  • Eagle Ford continues to deliver highest margin production in the portfolio

Market diversification:  Maximizing realized pricing and ensuring efficient market access
Through a combination of pipeline transportation and term financial basis hedging, Encana has limited its exposure to Midland oil pricing and AECO gas pricing. Including basis hedges, the company's third quarter Permian realized oil price was 101 percent of the WTI average while Canadian realized gas prices were 86 percent of the NYMEX average.

As at September 30, 2018, Encana has hedged approximately 136,500 bbls/d of expected oil and condensate production and 1,017 million cubic feet per day (MMcf/d) of expected natural gas production for the remainder of 2018, using a variety of structures.

Corporate Guidance
Encana adjusted its Corporate Guidance, lowering its expected transportation and processing costs to between $7.20 and $7.40 per BOE for a reduction of about $25 million. In addition, the company updated its expected capital investment to approximately $2.0 billion, which includes current-year expenditures on the Pipestone Liquids Hub and the San Juan assets totaling approximately $55 million as well as modest pressure on diesel fuel costs and steel tariffs.

Dividend Declared
On October 31, 2018, the Board of Directors declared a dividend of $0.015 per common share payable on December 31, 2018 to common shareholders of record as of December 14, 2018.

Third Quarter Highlights

Production summary 
(for the period ended September 30)
 % ∆
Oil (Mbbls/d)95.575.227
NGLs – Plant Condensate (Mbbls/d)41.027.947
NGLs – Other (Mbbls/d)42.224.473
Oil and NGLs Total (Mbbls/d)178.7127.540
Natural gas (MMcf/d) 1,19793927
Total production (MBOE/d)378.2284.033


Liquids and natural gas prices 
 Q3 2018Q3 2017
Encana realized liquids prices149.0541.86
NGLs – Plant Condensate52.8945.84
NGLs – Other27.2319.00
Natural gas  
NYMEX ($/MMBtu)2.903.00
Encana realized natural gas price1 ($/Mcf)2.502.23

 1 Prices include the impact of realized gain (loss) on risk management.

Non-GAAP Cash Flow Reconciliation
 (for the period ended September 30)
 ($ millions, except as indicated)
Q3 2018Q3 2017
Cash from (used in) operating activities
Deduct (add back):
  Net change in other assets and liabilities
  Net change in non-cash working capital
  Current tax on sale of assets


Non-GAAP cash flow1589270
Divided by Production Volumes (MMBOE)34.826.1
Non-GAAP cash flow margin1 ($/BOE)16.9310.34
Non-GAAP Free Cash Flow Reconciliation
Non-GAAP cash flow1
Less capital expenditures
Non-GAAP free cash flow166(203)
Non-GAAP Operating Earnings Reconciliation
Net earnings (loss)
Before-tax (addition) deduction:
  Unrealized gain (loss) on risk management
  Non-operating foreign exchange gain (loss)
   Gain (loss) on divestiture



  Income tax
  After-tax (addition) deduction(124)270
Non-GAAP operating earnings 1163  24

1 Non-GAAP cash flow, non-GAAP cash flow margin, non-GAAP free cash flow and non-GAAP operating earnings (loss) are non-GAAP measures as defined in Note 1.

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