Encana Corp. said it will focus 75% of its planned $2.4-2.5 billion capital for 2014 on liquids-rich assets in the Montney, Duvernay, DJ basin, San Juan basin, and the Tuscaloosa Marine shale, facilitating a 30% increase in year-over-year liquids production.
Those five assets are expected to comprise 25% of total production in 2014 while generating 45% of total upstream operating cash flow before the impact of commodity price hedging.
The company plans to derive three fourths of its cash flow from oil and natural gas liquids by 2017.
“Going forward through to 2017 we will measure success by our performance on three key indicators: our transition to a balanced commodity portfolio, operational excellence, and the integrity of our balance sheet,” said Doug Suttles, Encana’s president and chief executive officer.
Thirty percent growth in liquids production will offset a small decline in expected gas production for 2014. With growth in higher margin liquids, Encana estimates it will see a 10% increase in netbacks.
Encana in 2012 said it planned to invest an additional $600 million in numerous oil and liquids-rich natural gas plays, expecting to increase its total liquids production for the year to 30,000 b/d (OGJ Online, June 2, 2012).
The company's forecasted production, on a total equivalency basis, for 2014 is expected to remain unchanged from last year despite a more than 10% reduction in planned capital investment from 2013 levels.
The company said it will align its capital expenditures with cash flow and unlock value from its asset base through an initial public offering of its Clearwater Royalty business. Encana also plans to repay a $1 billion, 5.8% note maturity in cash due May 1, 2014.
Encana projected its full-year 2014 upstream operating cash flow, including hedging, to be $3-3.2 billion. Total cash flow is expected at $2.4-2.5 billion. Natural gas production is expected to average 2.6-2.8 bcfd with total liquids production 70,000-75,000 b/d.
The company said it can average a growth rate of more than 10% in cash flow per share through 2017.
Core play outline
Encana plans to accelerate its development of the oil and liquids-rich areas of Montney, specifically the Gordondale, Pipestone, and Tower areas, investing $800-900 million in 2014.
Total investment in the play for the year, including carry capital from the Cutbank Ridge Partnership with Mitsubishi, will reach $1.7-1.8 billion. The company plans to run a 6-8-drilling rig program to drill 80-85 net wells.
The company will move into full resource play hub development mode with pad drilling in the northern Kaybob area of the Duvernay, and complete its evaluation of the southern Willesden Green area. Encana will also work to finalize a midstream infrastructure solution to support future development.
The company plans to invest $250-300 million of its capital in this play, running a 6-8-drilling rig program with plans to drill 15-20 net wells in 2014. Total investment in the Duvernay, including the carry capital contributed as part of Encana's joint venture agreement with PetroChina, will be $1-1.2 billion for the year.
Encana's focus in the DJ basin will be to continuously improve capital efficiency with a goal to reach 70% year-over-year growth in production in the play. The company plans to invest $250-300 million and run a 4-6-drilling rig program to drill 40-50 net wells in 2014.
In the San Juan basin, Encana will continue to advance its pace of development and work to further reduce well costs through the optimization of its completions process. The company plans to invest $300-350 million while running a 2-4-drilling rig program to drill 45-50 net wells in 2014.
Encana will complete its assessment of the TMS with plans to invest $125-150 million to operate 1-3 drilling rigs and complete nine to 12 net wells.
Organizational alignment
Encana has completed the alignment of its organizational structure, resulting in 20% workforce reduction since the beginning of November. In fourth-quarter 2013, Encana expects to take a $65 million after-tax charge as a result of the restructuring.
Suttles, who was named to his position in June (OGJ Online, June 11, 2013), helped set up a new management structure as part of the company’s strategy development process, appointing a senior management team that reports directly to him (OGJ Online, Oct. 2, 2013).
