By Dan Healing, Calgary Herald June 21, 2012 8:26 AM
CALGARY – Canada’s biggest natural gas producer is accelerating its move into the liquids game with a $600-million increase in spending on 10 North American plays where higher-value products like oil, propane and condensate are produced with the gas.
It said its investment will exceed cash flow for at least 18 months but will allow it to increase liquids output for 2012 by seven per cent to 30,000 barrels per day by drilling 115 to 120 wells, 75 more than were originally envisioned.
“Our stated goal is to transition to a more balanced portfolio of production and cash flow generation and to do so as prudently as we can,” said Randy Eresman, president and chief executive, on a webcast from the company’s investor day event in New York Thursday morning.
“We plan to increase the pace at which we develop our liquids-rich natural gas and oil plays while minimizing our investment in dry natural gas plays to largely preserve their value. We also plan to maintain our finanical strength through multiple joint ventures and divestitures.”
The company has already closed $2 billion in transactions this year and will aim to close another $2 billion to $2.5 billion by the end of 2013, he said, noting that the assets targeted for sale or partnership will include some of the same liquids-rich plays it has identified for heavier investment – such as the Alberta Duvernay ‑ and dry gas plays that might provide feedstock for liquefied natural gas projects.
Analyst Andrew Potter of CIBC World Markets gave the plans a “mixed” rating in a note to investors, noting that Encana is bucking the trend in industry by increasing spending as oil prices fall and gas remains locked in the price basement.
“On the positive side, Encana is clearly seeing good results from its liquids plays and has the ability to ramp-up quicker than we expected,” he wrote.
“However, on the negative side, the high spending strategy in a declining price environment (at least in the short-term) raises the risk profile of the company.”
He estimated Encana’s production in 2013 could averaged 3.39 billion cubic feet equivalent per day in 2013, composed of three bcf/d of natural gas plus 60,000-70,000 bpd of liquids, up about six per cent over 2012 estimated production.
Encana’s 2012 capital program will jump from $2.9 billion to $3.5 billion and in 2013 it plans to spend $4.5 billion. At the investor day, Eresman said the spending will depend on the success of the third party deals.
The company is expecting to drill approximately 350 oil and liquids rich wells in 2013, taking production to 60,000 to 70,000 bpd, about 40 per cent of which is expected to be comprised of oil and field condensate.
Encana is targeting 10 plays including the west central Alberta Duvernay play, where it holds 160,000 net hectares of drilling rights, and will drill 10 wells in 2012.
It said it is getting 50 to 60 degree API gravity field condensate yields ranging from 120 to 200 barrels per million cubic feet in the play and its most recent tied-in well delivered 1,200 barrels per day of condensate and 3.5 million cubic feet per day of natural gas during its first two days on stream.
Encana’s other oil-rich plays are the Tuscaloosa Marine Shale, Eaglebine, Mississippian Lime, Utica/Collingwood, San Juan, DJ Niobrara and Clearwater Liquids.
dhealing@calgaryherald.
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