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EnCana fattens proven reserves by 12 percent Boost includes 1.7 trillion cubic feet of North American gas additions; reverses wave of Canadian write-downs; results stem partly from 2002 reduction Gary Park Petroleum News Calgary Correspondent
EnCana has put a stop to a parade of bad news from Canadian E&P companies which have reported vanishing reserves over the last two weeks.
The giant independent reported a 12 percent hike in proven reserves, mainly the result of an aggressive drilling program of 5,600 wells in 2003.
The net gain boosted EnCana’s holdings to 2.36 billion barrels of oil equivalent, including 204 million barrels of crude oil and natural gas liquids and a staggering 1.7 trillion cubic feet of North American gas, holding the line on its reserve life index of 10 years.
It entered 2004 with 8.4 tcf of gas and 957 million boe of crude and gas liquids, following a 9 percent spurt in production last year to 650,200 boe per day.
It was a welcome turnaround in a flow of recent reserve write-downs by Shell Canada, Petro-Canada, Husky Energy, Nexen and Pengrowth Energy Trust. EnCana trimmed reserves in 2002 But some analysts, while crediting EnCana’s skill in opening up new plays, such as tight sands, also noted that the company prudently trimmed 110 million boe of reserves in 2002 after the merger of Alberta Energy Co. and PanCanadian Energy was concluded.
EnCana Chief Executive Officer Gwyn Morgan said EnCana has adopted Alberta Energy’s practice of using external consultants to independently evaluate reserves, then using a committee of independent directors of its board review the numbers.
The upshot is that EnCana believes there is a “very high probability” of its reserves being realized.
Under new disclosure rules in Canada, proved reserves are required to carry at least a 90 percent chance of being produced, compared with 80 percent in the old code.
Morgan told the Financial Post that EnCana operates from a “truly firm base” that by definition has more upside than downside because proven reserves should have “very little downside.”
EnCana’s philosophy is that “we’d rather have positive surprises than negative surprises,” he said. New fields won’t be added until under development To that end it will not incorporate new fields, such as Nova Scotia’s offshore Deep Panuke gas field with an estimated 930 billion cubic feet, until it moves to commercial development.One number that troubled some analysts was EnCana’s reported US$8.75 per boe cost of finding and developing news reserves.
However, Morgan said that resulted from EnCana’s decision to move to U.S. dollar reporting, starting with year-end results for 2003, enabling analysts and investors to more easily compare the Canadian firm with its U.S. peers.
That switch made Canadian programs more expensive because of the 20 percent gain last year in the value of the Canadian dollar.
In addition, Morgan said the finding and development costs included major outlays such as its C$500 million land-buying investment in northeastern British Columbia’s Cutbank Ridge play.
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