(TSX:ECA) (NYSE:ECA)
Encana’s first quarter financial and operating
performance has the company firmly on track to deliver more than 30
percent annual production growth within expected cash flow.
Increased year-over-year liquids production, continued cost
efficiencies and strong realized pricing resulting from the
company’s market diversification strategy contributed to
significant non-GAAP cash flow growth and margin expansion.
Consistent with its 2018 plan, the company is positioned to deliver
substantial liquids growth in the second half of 2018. Highlights
in the quarter include:
- net earnings of $151 million;
non-GAAP operating earnings of $156 million, up from $104 million
in the first quarter of 2017
- cash from operating activities of
$381 million, up from $106 million in the first quarter of
2017
- non-GAAP cash flow of $400 million,
up 44 percent from $278 million in the first quarter of 2017
- non-GAAP cash flow margin of $13.70
per barrel of oil equivalent (BOE), up 41 percent
year-over-year
- total liquids production of 145,200
barrels per day (bbls/d), up 31 percent from first quarter
2017
- first quarter Permian production of
83,800 barrels of oil equivalent per day (BOE/d), up 49 percent
year-over-year
- highly successful market
diversification strategy delivered strong realized pricing
- demonstrated commitment to
shareholder returns and confidence in five-year plan by purchasing
10 million common shares for $111 million as part of its $400
million normal course issuer bid
“The first quarter marked a solid start to the
year and reinforces our confidence in our plan to deliver more than
30 percent growth within corporate cash flow,” said Doug Suttles,
Encana President & CEO. “Our focus on value creation and
returns is deeply embedded across the company. Our market
diversification strategy delivered strong realized pricing and our
ability to drive efficiency improvements ensures that commodity
price increases can flow to the bottom line.”
“We continue to optimize our cube development
model, further maximizing the value of our land base and driving
even greater efficiency into our operations,” added Suttles.
“Consistent with our plan, we expect significant high-margin oil
and condensate growth in the second half of 2018.”
Solid first quarter performance,
year-over-year growth and quality returnsEncana delivered
solid financial performance and year-over-year growth through the
first quarter. The company generated cash from operating activities
of $381 million compared to $106 million in the first quarter of
2017, as well as first quarter net earnings of $151 million.
Non-GAAP cash flow increased 44 percent to $400 million compared to
the first quarter of 2017 and year-over-year non-GAAP operating
earnings were up 50 percent to $156 million.
Encana’s capital discipline, focus on its
premium inventory, efficiency gains and market diversification
strategy contributed to a first quarter non-GAAP cash flow margin
of $13.70 per BOE, up 41 percent from $9.72 per BOE in the first
quarter of 2017. Encana expects to deliver a full-year average
non-GAAP cash flow margin of approximately $14.00 per BOE.
Encana’s first quarter production totaled
324,400 BOE/d of which the company’s core assets contributed
307,500 BOE/d. Total liquids production grew by 31 percent to
145,200 bbls/d compared to the first quarter of 2017, with oil and
condensate making up nearly 80 percent. Natural gas production was
1,075 million cubic feet per day (MMcf/d).
The company is on track to increase total
production by more than 30 percent in 2018 compared to 2017,
adjusted for 2017 dispositions. Encana expects its core assets will
deliver fourth quarter production between 400,000 BOE/d and 425,000
BOE/d. The company’s $1.8 billion to $1.9 billion 2018 capital
program is being fully funded by expected cash flow.
Optimizing cube development growing the
value of Encana’s premium well inventoryEncana’s cube
development, which simultaneously targets multiple stacked pay
zones, continues to optimize resource recovery and lower
development costs and operating expenses. This development model
combined with advanced high-intensity completions delivered
outstanding first quarter well performance in the Permian and
Montney. Through innovation, efficiency and active supply chain
management, Encana continues to offset the impact of cost
inflation. Operational highlights from the quarter include:
Permian: strong execution delivers
impressive oil growth
- first quarter oil production of
54,200 bbls/d and total production of 83,800 BOE/d; on track to
deliver approximately 30 percent annual growth
- a 10-well Martin county cube
delivered average 90-day initial production rates of 1,300 BOE/d
including 1,000 bbls/d of oil
- the latest Midland eight well cube
delivered average 30-day initial production rates of 1,500 BOE/d
including 1,150 bbls/d of oil
- proactive supply chain management,
self-sourced materials and efficiency gains are offsetting
inflation
Montney: on track to double liquids
production for second consecutive year
- first quarter production of 165,300
BOE/d including 30,400 bbls/d of liquids production; on track to
deliver 55,000 to 65,000 bbls/d total liquids production in the
fourth quarter
- five cubes completed in the
quarter, each with six to 14 wells, delivered average 30-day
initial production rates of approximately 300 bbls/d of
condensate
- the Tower, Saturn and Sunrise
plants delivered average run-times of more than 98 percent in the
first quarter
- completed an innovative midstream
agreement that strongly supports the company’s condensate-focused
growth plan with increased processing capacity in the liquids-rich
Pipestone area
Eagle Ford and Duvernay: quality assets
generating free cash flow
- delivered total combined first
quarter production of 58,400 BOE/d
- restarted the Duvernay drilling
program and ramped up the Eagle Ford program from one to three
rigs; both assets expected to return to growth in the third
quarter
- two Austin Chalk wells in the Eagle
Ford delivered average 30-day initial production rates of 1,925
BOE/d of which 70 percent was oil
- consistent with plan, 2018
production for both assets is expected to be similar to 2017
Encana’s five-year plan is built around its
premium inventory of high-margin well locations. The company
expects to develop only a fraction of this inventory throughout its
five-year plan.
Committed to quality shareholder returns
and balance sheet strengthEncana demonstrated its
commitment to shareholder returns and confidence in its five-year
plan by announcing a $400 million share repurchase program to be
funded with cash on hand. During the first quarter, through its
normal course issuer bid, Encana purchased and cancelled 10 million
common shares for total consideration of $111 million.
During the quarter, the company extended the
maturity of its credit facilities to July 2022 and amended the
total capacity to $4.0 billion. Encana ended the first quarter with
cash and cash equivalents of $433 million and available credit
facilities of $4.0 billion.
Market diversification and risk
management drives quality returnsEncana's risk management
strategy reflects its commitment to maximizing cash flows and
delivering leading returns through the commodity cycle.
The company actively manages regional price risk
and has limited its exposure to AECO natural gas and Midland oil
pricing. Encana has secured significant market and price
diversification through a combination of pipeline transportation
and term financial basis hedging, resulting in strong realized
pricing.
The company’s market diversification strategy
for its western Canadian natural gas production contributed a $1.00
per BOE uplift to Encana’s non-GAAP cash flow margin in the first
quarter. In addition, Encana has virtually no exposure to expected
Midland oil pricing through 2018 and limited exposure to the end of
2019. Over this period, the company expects to realize oil pricing
approximately equivalent to WTI.
As at March 31, 2018, Encana has hedged
approximately 120,000 bbls/d of expected oil and condensate
production and 1,026 MMcf/d of expected natural gas production for
the remainder of 2018 using a variety of structures at an average
price of $55.52 per barrel and $3.02 per thousand cubic feet (Mcf),
respectively.
Dividend declaredOn April 30,
2018, the Board declared a dividend of $0.015 per share payable on
June 29, 2018 to common shareholders of record as of June 15,
2018.
First Quarter Highlights
Non-GAAP Cash Flow Reconciliation |
(for the period ended March 31) ($ millions, except per
share amounts) |
Q1 2018 |
Q1 2017 |
|
|
|
Cash from (used in) operating activities |
381 |
106 |
Deduct (add back): |
|
|
Net change in other assets and liabilities |
(11) |
(12) |
Net change in non-cash working capital |
(8) |
(160) |
Current tax on sale of assets |
- |
- |
Non-GAAP cash flow1 |
400 |
278 |
Non-GAAP Operating Earnings
Reconciliation |
Net earnings (loss) |
151 |
431 |
Before-tax (addition) deduction: |
|
|
Unrealized gain (loss) on risk management |
68 |
362 |
Non-operating foreign exchange gain (loss) |
(100) |
34 |
Gain (loss) on divestitures |
3 |
(1) |
Income tax |
(29) 24 |
395 (68) |
After-tax (addition) deduction |
(5) |
327 |
Non-GAAP operating earnings
1 |
156 |
104 |
1 Non-GAAP cash flow and non-GAAP operating earnings (loss) are
non-GAAP measures as defined in Note 1.
Production summary |
(for the period ended March 31)(average) |
Q12018 |
Q12017 |
% ∆ |
Oil (Mbbls/d) |
83.0 |
67.4 |
23 |
|
NGLs – Plant Condensate (Mbbls/d) |
30.2 |
20.5 |
47 |
|
NGLs – Other (Mbbls/d) |
32.0 |
23.0 |
39 |
|
Oil and NGLs Total (Mbbls/d) |
145.2 |
110.9 |
31 |
|
Natural gas (MMcf/d) |
1,075 |
1,241 |
(13 |
) |
Total production (MBOE/d) |
324.4 |
317.9 |
2 |
|
Liquids and natural gas prices |
|
Q1 2018 |
Q1 2017 |
Liquids ($/bbl) |
|
|
WTI |
62.87 |
51.91 |
Encana realized liquids prices1 |
|
|
Oil |
55.74 |
49.66 |
NGLs – Plant Condensate |
52.49 |
48.74 |
NGLs – Other |
23.64 |
20.66 |
|
|
|
Natural gas |
|
|
NYMEX ($/MMBtu) |
3.00 |
3.32 |
Encana realized natural gas price1
($/Mcf) |
2.94 |
2.50 |
1 Prices include the impact of realized gain
(loss) on risk management.
First quarter conference call and Annual
Meeting of ShareholdersA conference call and webcast to
discuss the 2018 first quarter results will be held for the
investment community today at 7 a.m. MT (9 a.m. ET). To
participate, please dial 888-231-8191 (toll-free in North America)
or 647-427-7450 (international) approximately 10 minutes prior to
the conference call.
The Annual Meeting of Shareholders will be held
today at the Oddfellows Building, Ballroom (Floor 4), 100 6 Avenue
S.W., Calgary, Alberta, beginning at 10 a.m. MT (12 p.m. ET). The
live audio webcast of the first quarter conference call and Annual
Meeting of Shareholders, including slides, will also be available
on Encana's website, www.encana.com, under Investors/Presentations
& Events. The webcasts will be archived for approximately 90
days.
Encana CorporationEncana is a
leading North American energy producer that is focused on
developing its strong portfolio of resource plays, held directly
and indirectly through its subsidiaries, producing oil, natural gas
liquids (NGLs) and natural gas. By partnering with employees,
community organizations and other businesses, Encana contributes to
the strength and sustainability of the communities where it
operates. Encana common shares trade on the Toronto and New York
stock exchanges under the symbol ECA.
Important InformationEncana
reports in U.S. dollars unless otherwise noted. Production, sales
and reserves estimates are reported on a net (after-royalties)
basis, unless otherwise noted. The term liquids is used to
represent oil, NGLs and condensate. The term liquids-rich is used
to represent natural gas streams with associated liquids volumes.
Unless otherwise specified or the context otherwise requires,
references to Encana or to the company includes reference to
subsidiaries of and partnership interests held by Encana
Corporation and its subsidiaries.
NOTE 1: Non-GAAP
measures
This news release contains references to
non-GAAP measures as follows:
- Non-GAAP Cash flow is a non-GAAP
measure defined as cash from operating activities excluding net
change in other assets and liabilities, net change in non-cash
working capital and current tax on sale of assets. Corporate
Margin is a non-GAAP measure defined as Non-GAAP Cash Flow per BOE
of production.
- Non-GAAP Operating earnings (loss)
is a non-GAAP measure defined as net earnings (loss) excluding
non-recurring or non-cash items that management believes reduces
the comparability of the company's financial performance between
periods. These before-tax items may include, but are not limited
to, unrealized gains/losses on risk management, impairments,
restructuring charges, non-operating foreign exchange gains/losses,
gains/losses on divestitures and gains on debt retirement.
Income taxes may include valuation allowances and the provision
related to the pre-tax items listed, as well as income taxes
related to divestitures and adjustments to normalize the effect of
income taxes calculated using the estimated annual effective income
tax rate.
ADVISORY REGARDING OIL AND GAS
INFORMATION - The conversion of natural gas volumes to
barrels of oil equivalent (BOE) is on the basis of six thousand
cubic feet to one barrel. BOE is based on a generic energy
equivalency conversion method primarily applicable at the burner
tip and does not represent economic value equivalency at the
wellhead. Readers are cautioned that BOE may be misleading,
particularly if used in isolation. 30-day initial or peak
production and other short-term rates are not necessarily
indicative of long-term performance or of ultimate recovery.
ADVISORY REGARDING FORWARD-LOOKING
STATEMENTS - This news release contains certain
forward-looking statements or information (collectively, “FLS”)
within the meaning of applicable securities legislation, including
the United States Private Securities Litigation Reform Act of 1995.
FLS include: expectation of meeting or exceeding targets in
corporate guidance and five-year plan; production growth, including
from core assets, and commodity mix thereof; ability to offset cost
inflation and anticipated efficiencies; focus on value creation and
returns; success and benefits of cube development model, including
maximizing value of land base; anticipated non-GAAP cash flow
margin; funding of capital program within cash flows; success of
supply chain management and self-sourcing of materials; number of
well locations and anticipated development within five-year plan;
anticipated share repurchase program, including amount and number
of shares to be acquired and timing thereof; anticipated hedging
and outcomes of risk management program, including amount of hedged
production, success of market diversification strategy and realized
pricing; performance relative to peers; and anticipated
dividends.
Readers are cautioned against unduly relying on
FLS which, by their nature, involve numerous assumptions, risks and
uncertainties that may cause such statements not to occur, or
results to differ materially from those expressed or implied. These
assumptions include: future commodity prices and differentials;
foreign exchange rates; ability to access credit facilities and
shelf prospectuses; assumptions contained in the Company’s
corporate guidance, five-year plan and as specified herein; data
contained in key modeling statistics; availability of attractive
hedges and enforceability of risk management program; effectiveness
of Encana's drive to productivity and efficiencies; results from
innovations; expectation that counterparties will fulfill their
obligations under the gathering, midstream and marketing
agreements; access to transportation and processing facilities
where Encana operates; assumed tax, royalty and regulatory regimes;
enforceability of transaction agreements; and expectations and
projections made in light of, and generally consistent with,
Encana's historical experience and its perception of historical
trends, including with respect to the pace of technological
development, benefits achieved and general industry
expectations.
Risks and uncertainties that may affect these
business outcomes include: ability to generate sufficient cash flow
to meet obligations; commodity price volatility; ability to secure
adequate transportation and potential pipeline curtailments;
variability and discretion of Encana's board of directors to
declare and pay dividends, if any; variability in the amount,
number of shares and timing of purchases, if any, pursuant to the
share repurchase program; timing and costs of well, facilities and
pipeline construction; business interruption, property and casualty
losses or unexpected technical difficulties, including impact of
weather; counterparty and credit risk; impact of a downgrade in
credit rating and its impact on access to sources of liquidity;
fluctuations in currency and interest rates; risks inherent in
Encana's corporate guidance; failure to achieve cost and efficiency
initiatives; risks inherent in marketing operations; risks
associated with technology; changes in or interpretation of
royalty, tax, environmental, greenhouse gas, carbon, accounting and
other laws or regulations; risks associated with existing and
potential lawsuits and regulatory actions made against Encana;
impact of disputes arising with its partners, including suspension
of certain obligations and inability to dispose of assets or
interests in certain arrangements; Encana's ability to acquire or
find additional reserves; imprecision of reserves estimates and
estimates of recoverable quantities of liquids and natural gas from
plays and other sources not currently classified as proved,
probable or possible reserves or economic contingent resources,
including future net revenue estimates; risks associated with past
and future acquisitions or divestitures of certain assets or other
transactions or receipt of amounts contemplated under the
transaction agreements (such transactions may include third-party
capital investments, farm-outs or partnerships, which Encana may
refer to from time to time as “partnerships” or “joint ventures”
and the funds received in respect thereof which Encana may refer to
from time to time as “proceeds”, “deferred purchase price” and/or
“carry capital”, regardless of the legal form) as a result of
various conditions not being met; and other risks and uncertainties
impacting Encana's business, as described in its most recent Annual
Report on Form 10-K and as described from time to time in Encana’s
other periodic filings as filed on SEDAR and EDGAR.
Although Encana believes the expectations
represented by such FLS are reasonable, there can be no assurance
that such expectations will prove to be correct. Readers are
cautioned that the assumptions, risks and uncertainties referenced
above are not exhaustive. FLS are made as of the date of this news
release and, except as required by law, Encana undertakes no
obligation to update publicly or revise any FLS. FLS contained in
this news release are expressly qualified by these cautionary
statements.
Further information on Encana Corporation is
available on the company’s website, www.encana.com, or by
contacting:
Investor contact:Corey CodeVice-President,
Investor Relations(403) 645-4606 Patti
PosadowskiSr. Advisor, Investor Relations(403)
645-2252 |
Media contact:Simon ScottVice-President,
Communications(403) 645-2526 Jay AverillDirector,
Media Relations(403) 645-4747 |
SOURCE: Encana Corporation
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