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Strong fourth quarter results prompt Encana to increase 2017 expectations

Calgary-based Encana Corp. (ticker: ECA) announced today that following a strong performance in the fourth quarter of 2016, the company now believes that production will reach or exceed the high end of its previously announced guidance, and that it will see improved margins on a per-barrel basis in 2017.

Encana now expects production growth from its four core assets to meet the high end, or exceed, its 15%-20% year-over-year target, and to deliver a corporate margin of greater than $10 per barrel of oil equivalent in 2017 based on price assumptions of $55.00 WTI and $3.00 NYMEX, the company said in a press release Wednesday.

Previously, Encana expected $8 per BOE. The 25% improvement is the result of anticipated lower costs through 2017 and increased total volumes expected in the second half of this year.

“Our performance gives us confidence that we can deliver one of the best value creation stories in our industry,” said Encana President & CEO Doug Suttles. “Through our relentless focus on efficiency, we expect our total 2017 drilling and completion costs will be flat or down year-over-year despite inflation for some services.”

This will help to jump-start a strong five-year performance for the company, Encana said in its press release. ECA expects its 2018 corporate margin to reach $13 per BOE based on $55.00 WTI and $3.00 NYMEX. It also believes that it will grow production from its four core assets by over 30% from Q4 2017 to Q4 2018.

Encana outlook for 2017 and 2018

Source: Encana

The company said it reached its projected 2017 operational activity and rig count levels in December 2016, which included five rigs in the Permian, one rig in the Montney, two rigs in the Eagle Ford, and four rigs in the Duvernay.

Encana’s fourth quarter operational overview

  • In the Permian, Encana is currently operating five horizontal rigs — four rigs in Midland County re-occupying the Davidson pad and one in Howard County. Four recent Midland County wells (two in the Wolfcamp A zone, one in Wolfcamp B and one in the Lower Spraberry), with an average lateral length of 8,650 feet, delivered an average 30-day initial production rate of 1,050 BOEPD, including 815 BOPD of oil.
  • In the Montney, Encana is currently running one rig in Pipestone. Four recent Pipestone wells, with an average lateral length of 9,000 feet, delivered an average 90-day initial production rate of 1,740 BOEPD, including 1,000 BOPD of condensate. The company is ramping up activity in the Cutbank Ridge Partnership to prepare for the expected 2017 fourth quarter start-up of the two Veresen Midstream plants at Tower and Sunrise. Construction of both plants is on schedule and under budget.
  • In the Eagle Ford, Encana is currently running two rigs. Two recent Karnes County Eagle Ford wells were completed with the company’s thin-fluid tight-cluster design. These wells, with an average lateral length of 4,700 feet, delivered an average 30-day initial production rate of 1,750 BOEPD, including 1,160 BOPD of oil. Encana’s two Austin Chalk wells, with an average lateral length of 3,400 feet, delivered an average 90-day initial production rate of 1,800 BOEPD, including 1,550 BOPD of oil.
  • In the Duvernay, Encana is currently running four rigs targeting the Duvernay and one rig targeting the Montney zone which overlies the Duvernay zone in this area. Two recent Duvernay wells in the oil window, with an average lateral length of 10,150 feet, delivered an estimated 30-day initial production rate of 1,500 BOEPD, of which 1,000 BOPD is being sold as condensate. Currently, Encana’s premium return inventory in the play does not include any locations in the oil window.

Encana’s 2017 hedge position

As at December 22, 2016, Encana had hedged approximately 78,000 BOPD of expected 2017 crude and condensate production using a variety of structures at an average price of $53.93 per barrel. In addition, the company has hedged about 862 MMcf/d of expected 2017 natural gas production using a variety of structures at an average price of $3.14 per Mcf, the company said in its press release.

Encana hedges at year-end 2016

Source: Encana


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