TSX, NYSE: ECA
Encana delivered strong financial performance in
the second quarter driven by continued liquids growth, efficiencies
and robust realized prices. Year-over-year, the company more than
doubled cash from operating activities and increased its non-GAAP
cash flow and cash flow margin by 67 and 57 percent, respectively.
Encana is on track to grow annual production by over 30 percent and
now expects to generate free cash flow in 2018. The company has
raised its expected full-year average non-GAAP cash flow margin to
about $16 per barrel of oil equivalent (BOE).
Second quarter highlights include:
- cash from operating activities of $475 million, up almost 120
percent from the second quarter of 2017
- non-GAAP cash flow of $586 million, up 67 percent
year-over-year and 47 percent from the previous quarter
- non-GAAP cash flow margin of $19.09 per BOE, up 57 percent
year-over-year and 39 percent from the previous quarter
- net loss of $151 million primarily attributable to a non-cash,
before-tax, unrealized net loss on risk management
- liquids production of 155,300 barrels per day (bbls/d), up 24
percent year-over-year and seven percent from the previous
quarter
- Permian production up 43 percent year-over-year with current
production of more than 90,000 barrels of oil equivalent per day
(BOE/d)
- Montney liquids production up 128 percent year-over-year with
current liquids production of over 45,000 bbls/d
- market diversification strategy delivered robust realized
pricing; Permian realized oil price, including basis hedges, was
$70.15 per barrel, or 103 percent of WTI
“We delivered strong financial performance
through the second quarter and continue to demonstrate our ability
to execute efficiently at scale in a busier market,” said Doug
Suttles, Encana President & CEO. “Driven by liquids growth,
efficiencies and robust realized prices resulting from our market
diversification strategy, we are successfully converting rising
commodity prices into margin growth and quality returns.”
“Our performance positions us for a strong
second half of the year and has us on track to generate free cash
flow in 2018, one year earlier than originally targeted in our
five-year plan,” added Suttles. “Our multi-basin portfolio
continues to provide a competitive advantage, helping us
effectively manage risk, provide optionality to direct capital to
our highest margin opportunities and transfer learnings across the
business.”
Strong financial results: Liquids
growth, efficiencies and market diversification drive margin
expansionOil and condensate growth, efficiencies and
robust realized pricing are increasing margins, revenue and
returns. The company generated cash from operating activities of
$475 million, up from $218 million from the second quarter of 2017.
Encana recorded a second quarter net loss of $151 million primarily
attributable to a non-cash, before-tax, unrealized net loss on risk
management of $326 million. Non-GAAP operating earnings grew 10
percent year-over-year to $198 million.
Year-over-year, non-GAAP cash flow grew 67
percent to $586 million with non-GAAP cash flow margin growing 57
percent to $19.09 per BOE, including a net recovery of taxes and
interest of approximately $75 million which added about $2.44 per
BOE in the quarter. Driven by strong year-to-date performance,
Encana has raised its expected full-year average non-GAAP cash flow
margin to around $16 per BOE from its original target of $14 per
BOE. The company now expects to generate free cash flow in 2018,
one year earlier than outlined in its five-year plan.
Second quarter production totaled 337,900 BOE/d,
up seven percent year-over-year, with the company’s core assets
contributing 96 percent of total volumes. Year-over-year liquids
production grew by 24 percent to 155,300 bbls/d, including a 48
percent increase in condensate. Oil and condensate contributed 76
percent of second quarter liquids production. Natural gas
production was 1,095 million cubic feet per day (MMcf/d).
Encana is firmly on track to grow total
production by more than 30 percent from 2017, after adjusting for
2017 dispositions. The company expects its core assets will deliver
fourth quarter production of between 400,000 BOE/d and 425,000
BOE/d. Encana’s capital program, which was weighted to the first
half of the year, is on track with guidance.
Strong operational performance: Cube
development maximizes recovery, efficiency and
returnsEncana continues to maximize the value of its
multi-basin portfolio by allocating capital to its highest return
opportunities and optimizing resource recovery and efficiencies
through its cube development model. Consistent with its plan, the
company is on track to deliver significant oil and condensate
growth through the second half of the year. Second quarter
operational highlights include:
Permian: Strong well performance and
continued efficiencies
- production of 88,200 BOE/d
including 55,200 bbls/d of oil, up 43 and 42 percent year-over-year
respectively
- brought three cubes onto production
in Midland and Martin counties; four wells in the Jo Mill bench of
Martin County are exceeding type curve with average 30-day initial
production rates of 1,100 bbls/d of oil
- third-party data confirms
industry-leading drilling performance of 12.6 days from spud to rig
release
- current production of more than
90,000 BOE/d
Montney: On track to double liquids
volumes for second consecutive year
- production of 176,200 BOE/d
including 36,000 bbls/d of liquids, which is up 18 percent from the
first quarter
- Tower North-Central Liquids Hub
online ahead of schedule, supporting condensate growth plan
- focused development on
condensate-rich inventory
- current liquids production of more than 45,000 bbls/d; on track
to deliver fourth quarter liquids production between 55,000 to
65,000 bbls/d
Eagle Ford and Duvernay: High-return
growth
- combined production of 58,500
BOE/d
- Eagle Ford returned to growth and
is delivering the highest margin production in the portfolio
- brought 11 net wells onto
production in the Eagle Ford with encouraging results from the
Graben and Austin Chalk highlighting potential future premium
inventory
- in the Duvernay, two test wells are
delivering average 30-day initial production rates of around 1,050
bbls/d of condensate
Share repurchase programEncana
continued to advance its previously announced $400 million share
repurchase program. Year-to-date, through its normal course issuer
bid, the company has purchased and cancelled approximately 16.8
million common shares for total consideration of about $200
million. Encana expects to repurchase the full $400 million
authorized under the program by year-end.
Market diversification: Ensuring market
access and maximizing realized pricesThe focus of Encana’s
market diversification strategy is to maximize price realizations,
ensure efficient market access to support the company’s growth plan
and manage regional price risk. Encana’s integrated and proactive
approach has contributed approximately $70 million in additional
non-GAAP cash flow during the second quarter and around $100
million year-to-date.
Through a combination of pipeline transportation
and term financial basis hedging, Encana has virtually no exposure
to Midland oil pricing through 2018 and limited exposure through
2019. Including basis hedges, the company’s second quarter Permian
realized oil price was $70.15 per barrel, or 103 percent of
WTI.
As at June 30, 2018, Encana has hedged
approximately 128,300 bbls/d of expected oil and condensate
production and 1,084 MMcf/d of expected natural gas production for
the remainder of 2018, using a variety of structures.
Dividend declaredOn July 31,
2018, the Board of Directors declared a dividend of $0.015 per
common share payable on September 28, 2018 to common shareholders
of record as of September 14, 2018.
Second Quarter Highlights
Production summary
|
(for the period ended June 30)(average) |
Q22018 |
Q22017 |
% ∆ |
Oil (Mbbls/d) |
84.6 |
77.4 |
9 |
NGLs – Plant Condensate (Mbbls/d) |
33.7 |
22.8 |
48 |
NGLs – Other (Mbbls/d) |
37.0 |
24.7 |
50 |
Oil and NGLs Total (Mbbls/d) |
155.3 |
124.9 |
24 |
Natural gas (MMcf/d) |
1,095 |
1,146 |
(4) |
Total production (MBOE/d) |
337.9 |
316.0 |
7 |
Liquids and natural gas
prices |
|
Q2 2018 |
Q2 2017 |
Liquids ($/bbl) |
|
|
WTI |
67.88 |
48.29 |
Encana realized liquids prices1 |
|
|
Oil |
58.00 |
48.27 |
NGLs – Plant Condensate |
54.48 |
47.33 |
NGLs – Other |
23.77 |
17.15 |
Natural gas |
|
|
NYMEX ($/MMBtu) |
2.80 |
3.18 |
Encana realized natural gas price1
($/Mcf) |
3.03 |
2.56 |
1 Prices include the impact of realized gain (loss)
on risk management.
Non-GAAP Cash Flow
Reconciliation |
(for the period ended June 30) ($ millions,
except as indicated) |
Q2 2018 |
Q2 2017 |
|
|
|
Cash from (used in) operating
activities |
475 |
218 |
Deduct (add back): |
|
|
Net change in other assets and liabilities |
(5) |
(4) |
Net change in non-cash working capital |
(106) |
(129) |
Current tax on sale of assets |
- |
- |
Non-GAAP cash flow1 |
586 |
351 |
Divided by Production Volumes (MMBOE) |
30.7 |
28.8 |
Non-GAAP cash flow margin1
($/BOE) |
19.09 |
12.19 |
Non-GAAP Operating Earnings
Reconciliation |
Net earnings (loss) |
(151) |
331 |
Before-tax (addition) deduction: |
|
|
Unrealized gain (loss) on risk management |
(326) |
110 |
Non-operating foreign exchange gain (loss) |
(32) |
63 |
Gain (loss) on divestiture |
1 |
- |
|
(357) |
173 |
Income tax |
8 |
(22) |
After-tax (addition) deduction |
(349) |
151 |
Non-GAAP operating earnings 1 |
198 |
180 |
1 Non-GAAP cash flow, non-GAAP cash flow margin
and non-GAAP operating earnings (loss) are non-GAAP measures as
defined in Note 1.
Second quarter conference call
A conference call and webcast to discuss the 2018 second 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 live audio webcast of the
second quarter conference call, 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
measuresCertain measures in this news release do not have
any standardized meaning as prescribed by U.S. GAAP and, therefore,
are considered non-GAAP measures. These measures may not be
comparable to similar measures presented by other companies and
should not be viewed as a substitute for measures reported under
U.S. GAAP. For additional information regarding non-GAAP measures,
see the Company’s website. This news release contains references to
non-GAAP measures as follows:
- Non-GAAP Cash Flow is a non-GAAP measure
defined as cash from (used in) operating activities excluding net
change in other assets and liabilities, net change in non-cash
working capital and current tax on sale of assets. Non-GAAP
Cash Flow Margin is a non-GAAP measure defined as Non-GAAP
Cash Flow per BOE of production. Non-GAAP Free Cash
Flow is a non-GAAP measure defined as Non-GAAP Cash Flow
in excess of capital investment, excluding net acquisitions and
divestitures.
- 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 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 U.S. tax reform, 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; growth within cash
flows; anticipated non-GAAP cash flow margin; ability to generate
free cash flow; success of market diversification strategy and
realized pricing; benefits of multi-basin portfolio; ability to
offset cost inflation and anticipated efficiencies; focus on margin
growth and quality returns; success and benefits of cube
development model, and resulting type curves; expected capital
program; number of well locations and anticipated development
within five-year plan; anticipated shares to be acquired under
share repurchase program and timing thereof; anticipated hedging
and outcomes of risk management program, including amount of hedged
production; 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, External Communications(403)
645-4747 |
SOURCE: Encana Corporation
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