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Encana tightens focus to five areas Formerly company looked at natural gas, 30 areas; oil, condensates 75% of ’14 capital; goal survival through ‘commodity price cycles’ Gary Park For Petroleum News
Encana Chief Executive Officer Doug Suttles ended a five-month build up that promised bold action by delivering a sweeping overhaul Nov. 5 for what he believes is the “only truly North American resource company.”
For 20 percent of Encana’s 4,000 full-time employees and 900 core contract staff the news is bad. They will be looking for jobs by the end of 2013 as the company narrows its focus to five core operating areas from what was once 30 when Encana had tied its future to natural gas.
Now oil and condensates will claim 75 percent of its 2014 capital budget and likely continue at that level through 2017.
As the remade company adjusts to what Suttles describes as a business that can survive through “commodity price cycles” investors will also feel a bite, with their once-treasured quarterly dividends dropping to 7 cents a share from 23 cents.
The focus is now on British Columbia’s Montney, Alberta’s Duvernay, Colorado’s DJ Basin, New Mexico’s San Juan Basin and the Tuscaloosa Marine Shale in Louisiana/Mississippi.
Suttles said they were selected after a “deep, thorough and rigorous” review of Encana’s assets.
Although detailed spending plans will not be released until mid-December, he said the “high-return” assets are targeted to underpin a 10 percent annual growth in cash flow per share, which is expected to grow at more than three times production.
Unlocking royalty value Encana also plans to spin off a new company, in which it will hold a “significant percentage,” to manage 5 million acres of fee title land and associated royalty interests in what is known as the Clearwater region, extending from central to southern Alberta. The initial public offering is scheduled for mid-2014.
“This gives the company the opportunity to unlock value from what it believes is an undervalued royalty business in its portfolio while offering the potential for longer-term cash flow generation to Encana,” the company said in a statement.
Suttles also said that depending on a market response, more unidentified assets could be sold, but he said those sales are not needed for the new corporate strategy to work.
Upper spending limits set Of next year’s capital budget, Encana has set upper spending limits of $600 million for the Montney, $350 million for the Duvernay, $250 million in the DJ Basin, $450 million in the San Juan and $300 million in the Tuscaloosa Marine. The remainder of the capital budget will go to maintenance and some joint-venture obligations.
Suttles said the Montney is “unbelievable in scale,” with 25 years of drilling inventory and the potential to yield 2 billion cubic feet per day of gas and 50,000 barrels per day of oil for Encana
He said Duvernay is a “massive play (with the) potential to become” more than double the size of the Eagle Ford in Texas and capable of generating 50,000 barrels of oil equivalent per day for Encana from the fairway’s estimated resources of 443 trillion cubic feet of gas, 11.3 billion barrels of liquids and 61.7 billion barrels of oil.
The company estimated that oil and condensate make up 70 percent of the liquids in the DJ, that the San Juan is capable of producing 50,000 boe per day with well costs at $4 million-$5 million each and Tuscaloosa Marine has the potential to deliver 50,000 boe per day to Encana.
Suttles said LNG is shaping up as “one of the key growth areas” for gas producers and Encana will be on the lookout for chances to link its gas properties to those projects, but does not consider LNG to be a core part of its strategy.
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