Encana has announced a highly focused 2015 capital program of between CAN$2.7 billion and CAN$2.9 billion, with approximately 80% directed to four of its highest margin growth plays; the Montney, Duvernay, Eagle Ford and Permian.
Transforming the oil and gas portfolio
“Following the launch of our new strategy, we took aggressive action and transformed our portfolio, significantly reduced our cost base and built a culture that drives efficiencies throughout our business,” says Doug Suttles, Encana President & CEO. “We enter 2015 focused on our long-term strategy, increasing liquids production, capturing new efficiencies throughout the business and protecting our balance sheet. We’re well positioned as the steps we’ve taken have given us the resilient portfolio, organisational agility and operational expertise needed to thrive throughout the commodity price cycle. Built into our 2015 plan is the flexibility to respond to the challenges and act on potential opportunities presented in this volatile price environment.”
Encana expects to generate approximately 75% of its 2015 cash flow from oil and liquids production. The company estimates total liquids production will grow approximately 70% compared to 2014 to between 140 000 and 160 000 bpd and anticipates overall production of between 405 000 and 440 000 boe/d. Encana expects total cash flow between CAN$2.5 billion and CAN$2.7 billion, reflecting the impact of higher margin production and continued cost efficiencies, partially offset by anticipated lower commodity prices.
2015 capital programme
Encana is committed to protecting its balance sheet through a prudent capital investment program. The company’s 2015 capital programme is based on assumptions of CAN$70 WTI oil prices and NYMEX natural gas prices of CAN$4/million Btu. In addition, the company expects to generate net proceeds of around CAN$800 million in the first quarter of 2015 through the completion of the previously announced divestiture of the majority of its Clearwater assets and other anticipated transactions.
2015 key deliverables
- Invest approximately 80% of capital into four of the company’s highest margin assets.
- Deliver an approximate 70% year-over-year growth in liquids production.
- Continue to realise capital and cost efficiency improvements.
- Protect balance sheet and maintain financial flexibility to respond to market dynamics.
- Optimise and enhance cash flow from base assets.
Encana’s complete 2015 Guidance can be downloaded from the company’s website.
Objectives for Encana’s growth plays
Approximately 80% of the company’s 2015 capital program will be invested in four of its highest margin assets, the Montney, Duvernay, Eagle Ford and Permian. These strategic assets have low supply costs averaging about CAN$35 – CAN$55/boe and are capable of delivering quality returns in a lower commodity price environment. The company expects them to contribute about 60% of total production and 70% of total upstream operating cash flow in 2015.
The Montney gives Encana a more than 25-year drilling inventory and large contiguous land positions with the potential of more than 2 billion f3/d and 50 000 bpd of natural gas and liquids production. In 2015, the company plans to invest between CAN$250 million and CAN$350 million and expects to run two to three rigs and drill between 20 and 30 net wells. An additional CAN$350 million is expected to be invested through Encana’s Cutbank Ridge Partnership with Mitsubishi Corporation, representing a total gross investment of between CAN$600 million and CAN$700 million. Liquids production is expected to grow 5% to between 19 000 and 20 500 bpd while low-cost, high rate of return natural gas production is expected to range between 580 and 620 million ft3/d.
Encana plans to build on milestones achieved in the Duvernay throughout 2014, including significant reductions in drilling costs and cycle times as well as increased market takeaway capacity. In 2015, the company plans to invest between CAN$250 million and CAN$350 million and continue to accelerate development in the Simonette area where it expects to run about three to five rigs and drill 15 to 25 net wells. An additional CAN$800 million is expected to be invested in the play through Encana’s joint venture with Brion Duvernay Gas (formerly named Phoenix Duvernay Gas), representing a gross investment of between CAN$1.0 billion and CAN$1.2 billion. Net liquids production from the Duvernay is expected to grow about 200% to an average of 6000 to 7000 bpd.
Since entering the substantially liquids-weighted Eagle Ford in the second quarter of 2014, Encana has leveraged its resource play expertise to increase liquids volumes while reducing drilling and completions costs. The company’s largely contiguous land position is in the core of the core, offering premium oil netbacks and good market access. Encana plans to invest between CAN$650 million and CAN$750 million in 2015, running three to five rigs and drilling 75 to 85 net wells. The company plans to achieve further operational efficiencies while growing liquids production to an average of 44 000 to 49 000 bpd.
Since closing its acquisition of Athlon Energy Inc. in the fourth quarter of 2014, Encana has begun implementing the resource play hub approach in what is widely recognised as one of North America’s top oil plays. The asset includes a more than 10-year drilling inventory with up to 11 potential productive horizons of high margin liquids. In 2015, Encana plans to invest between CAN$850 million and CAN$950 million in the play and run between nine and 13 rigs. The company plans to drill between 180 and 200 net wells. Projected volumes are expected to grow to approximately 50 000 boe/d.
DJ Basin, San Juan and Tuscaloosa Marine Shale (TMS)
These three assets underline the flexibility of Encana’s portfolio and represent further high-quality investment opportunities. Collectively, the company plans to invest approximately CAN$350 million to CAN$450 million in these assets in 2015 with combined total liquids production expected to be between 25 000 and 28 000 bpd.
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