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EnCana groomed for gas future Sitting on a pile of unconventional resources, Canadian independent expects to take advantage of the continued slide in North American conventional gas production before arrival of more LNG and Arctic gas Gary Park Petroleum News Calgary Correspondent
Sitting on a mountain of proved reserves, unbooked resource potential and vast land holdings, EnCana is confident it is ready to take advantage of a continued slide in North American conventional gas production before the arrival of more liquefied natural gas and Arctic gas.
Chief Executive Officer Gwyn Morgan told a conference call Feb. 23 that the continent’s conventional supplies peaked two years ago, leaving only unconventional resources — the underpinning of his Calgary-based company — to offset the decline.
He said there is no sign of early relief from LNG or the twin Arctic projects on the North Slope and Mackenzie Delta.
Given that outlook, he said EnCana, North America’s largest gas producer at about 3 billion cubic feet per day, has a “clear and sustainable competitive advantage” with its access to resources plays covering the length of Canada and the United States.
Having unloaded its United Kingdom North Sea assets for $2.1 billion to Nexen, EnCana will continue its strategy of focusing on unconventional resources — natural gas and the oil sands — this year by selling conventional properties producing 22,000 barrels of oil equivalent per day in Canada and seeking a buyer for its Ecuador assets, in hopes of generating $3 billion in proceeds.
With a large chunk of its activities aimed at shale gas and the Rocky Mountains in the United States, coalbed methane in Alberta and its big plays in northeastern British Columbia, EnCana boosted its reserves by 24 percent last year to 10.5 trillion cubic feet, including 2.2 tcf through the drill bit, giving the company combined proved and unbooked resource potential of 26 tcf, or 20 years of output at current rates.
Net North American gas additions of 3.2 tcf last year were almost triple 2004 production of 1.1 tcf. Reserve replacement at $1.40 per mcf equivalent Chief Operating Officer Randy Eresman said proved reserve replacement costs for 2004 were $1.40 per thousand cubic feet equivalent, yielding an average netback of $4 per thousand cubic feet equivalent.
On the outlook for North America, Morgan said the continent seems to have entered a period when demand for conventional oil and gas is growing faster than supply, leaving little room for unforeseen political or economic events.
He predicted that oil prices will continue to be volatile and are unlikely “any time soon” to come down from the heights they reached last year.
For 2005, EnCana is forecasting gas production of 3.35 billion to 3.5 billion cubic feet per day and oil output of 150,000-170,000 bpd, after taking out 22,000 boe per day from its Canadian divestitures starting in the third quarter.
In the Canadian Arctic, with Anadarko Canada and ConocoPhillips Canada as partners, it started drilling the Umiak N-05 exploration well on the Mackenzie Delta on Jan. 15 and expects to reach total depth in early March.
It also plans to test the Umiak N-16 well, drilled to 10,200 feet in early 2004, this winter.
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