Encana trims additional $700 million from 2015 capital budget

March 6, 2015
Encana Corp. is reducing its previously reported capital investment for 2015 by $700 million to $2-2.2 billion "to maintain a solid balance sheet and help strengthen liquidity through a low price environment."

Encana Corp. is reducing its previously reported capital investment for 2015 by $700 million to $2-2.2 billion "to maintain a solid balance sheet and help strengthen liquidity through a low price environment."

The company's capital spending program is now based on assumptions of $50/bbl West Texas Intermediate prices and $3/MMbtu natural gas prices on the New York Mercantile Exchange, down from the previous assumptions of $70/bbl and $4/MMbtu, respectively (OGJ Online, Dec. 16, 2014).

Encana now expects total cash flow of $1.4-1.6 billion vs. $2.5-2.7 billion. The company in 2014 reported a 14% increase in year-over-year cash flow to $2.9 billion.

The company still intends to fully fund its capital program and dividend with anticipated cash flow combined with net proceeds of $800 million from the divestitures of Montney midstream infrastructure to Veresen Midstream LP-expected to close in the first quarter-and certain Clearwater assets to Ember Resources Inc. (OGJ Online, Oct. 8, 2014).

North American shale focus

As with the initial budget, more than 80% of Encana's capital spending will be focused on the company's Permian basin and Eagle Ford shale areas in the US, and Montney shale and Duvernay shale areas in Canada.

Encana completed its acquisition of Athlon in fourth-quarter 2014, subsequently integrating the Permian-focused Athlon team while maintaining uninterrupted operations through the transition, the company said (OGJ Online, Nov. 13, 2014).

By yearend the company in the Permian had drilled 7 net horizontal and 21 net vertical wells and reduced well tie-in times from 15 to 5 days. Encana exited the year with an oil production rate of 18,000 b/d and total production of 31,000 boe/d.

Encana plans to invest $700 million in the Permian to run 4-6 horizontal rigs and 4-6 vertical rigs in 2015. The company anticipates drilling around 55 net horizontal wells and 110 net vertical wells. Projected volumes are expected to average at least 45,000 boe/d.

Encana last year closed on the acquisition of its Eagle Ford acreage during the second quarter (OGJ Online, June 20, 2014).

In its first full quarter of operations following the closing, the company reported a 9% reduction in drilling costs in the Eagle Ford through optimization of well design and reduced cycle times. Fourth-quarter production in the play was 36,000 b/d of liquids and 35 MMcfd of gas.

Encana drilled 35 net wells in the play in 2014 and plans to drill 60 net wells in 2015. The company now plans to invest $550 million to run 2-3 rigs in 2015. Total production is expected to expand to more than 50,000 boe/d.

In the Montney, Encana drilled 79 net wells in 2014 and plans to drill 25 net wells in 2015 while running 3 rigs. The company now expects a net investment of $245 million. The Cutbank Ridge Partnership expects to invest an additional $325 million, representing a total gross investment of $570 million. Expected net production for 2015 is 124,000 boe/d.

Encana in the Duvernay drilled 24 net wells last year. The company now plans to run 2-3 rigs in 2015 and drill around 15 net wells. Encana now expects a net investment of $230 million. An additional $660 million of joint venture capital is expected to be invested in the play, representing a gross investment of $890 million. Expected net production is 10,000 boe/d.