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EnCana not fazed by reserves cut Pipeline deals push asset disposals to C$2.1 billion for 2001; sets cap-ex for 2003 of C$5 billion in pursuit of 10 percent growth in daily oil, gas sales Gary Park PNA Canadian Correspondent
As EnCana Corp. rolls towards the first anniversary of its creation, the high-flying Canadian independent is not easily diverted from President and CEO Gwyn Morgan’s declared goal of building a “best-in-class” company on a global scale.
What might have been a jolt to EnCana’s stature when it announced proven reserves had been trimmed by 4 percent was lost in a welter of simultaneous upbeat news.
Stakes in two pipelines were sold for C$1.6 billion; a whopping capital budget of C$5 billion was set for 2003; 2002 daily sales of oil and natural gas are expected to grow by 10 percent and development programs worldwide are anticipated to sustain that pace.
The pipeline deals “mark another important milestone in further defining EnCana’s focus on exploration and production,” Morgan told a company-run Investor Day Nov. 20.
Proceeds from the pipelines, which will yield a C$250 million after-tax gain tin the first quarter of 2003, lifted EnCana’s dispositions to about C$2.1 billion for 2002, more than double the target set at the time of the merger of Alberta Energy Co. Ltd. and PanCanadian Energy Inc.
But the company offered few specifics on how the money will be spent beyond financing drilling in “large, long-life resource properties.” Not looking for large acquisitions However, Morgan told the Financial Post “one of the things we are not looking at is a big, major corporate deal. We are going to show that this merger is really adding value. We are going to hit our targets. We are not going to try and complicate our lives.”
Conscious of the difficulties multiple large purchase have created for U.S. companies, EnCana would restrict any acquisitions to the C$500 million to C$1 billion range, likely in some of its core operating bases — Western Canada, the U.S. Rocky Mountains, the Gulf of Mexico, the U.K. North Sea and Ecuador.
A consortium formed by BC Gas Inc. will pay C$1.18 billion, including the assumption of C$582 million in debt, to buy the 1,700-mile Express Pipeline System, which consists of two major links — Express and Platte.
The 24-inch Express system runs 1,717 miles from Alberta’s Hardisty hub to Casper, Wyo., with capacity of 172,000 barrels per day serving Montana, Wyoming and Utah. Express can be expanded to 280,000 barrels per day.
The 20-inch Platte line delivers up to 150,000 barrels per day from Casper to Wood River, Illinois.
Inter Pipeline Fund, former Koch Pipelines Canada L.P., will pay C$425 million in cash for EnCana’s indirect 70 percent stake in the Cold Lake Pipeline System, Canada’s largest heavy-oil gathering system which operates two primary legs — a 145-mile link carrying 235,000 barrels per day from Cold Lake to Edmonton and 260 miles south from Cold Lake to Hardisty, with capacity of 200,000 barrels per day. No details on Alaska plans EnCana’s cap-ex budget for next year includes C$3.5 billion for conventional North American oil and gas and C$500 million each for offshore and international operations; offshore and new ventures exploration; and midstream and marketing. There is no detailed outline yet of what the company has in mind for its exploration opportunities in Alaska and the Mackenzie Delta.
The budget is C$100 million higher than this year’s original target, although asset sales we expected to reduce net spending for 2002 to C$3.5 billion.
Daily sales for this year are forecast to reach as high as 2.79 trillion cubic feet of gas and 264,000 barrels per day of oil, for a peak combined output of 728,000 barrels of oil equivalent per day. The target for 2003 is 770,000 to 831,000 barrels of oil equivalent.
Morgan said that objective will not be affected by the company’s decision to cut reserves by 110 million barrels following an independent evaluation of the reserve base.
The new assessment gives EnCana estimated prove reserves of about 2.89 billion barrels of oil equivalent year-end 200, with discoveries, extensions to existing pools and net acquisitions totaling 500 million barrels of oil equivalent.
Morgan said he was not surprised that the first “completely full evaluation” since the merger, which was based on more stringent criteria, resulted in a lowering of reserves.
He said the figures should build confidence among investors, noting: “You just can’t afford to have your U.S. shareholders confused.”
The cut had already been anticipated by analysts and on the day it was announced EnCana shares rose C$1.39 on the Toronto Stock Exchange to C$44.85.
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