Encana reports plans to maximize value of condensate-rich Montney asset
CALGARY -- Encana continues to successfully advance its five-year plan, which it expects will deliver industry-leading cash flow growth and returns. The company's Montney asset plays an integral part in this plan and will contribute significant high-value condensate, non-GAAP cash flow and margin growth. The company has made significant recent progress adding further value to this asset by improving capital efficiency, increasing returns and managing risk.
"Our world-class, condensate-rich Montney asset keeps getting better and we believe there is opportunity for significant upside to our five-year plan," said Doug Suttles, Encana president and CEO. "We are making our Montney asset more valuable by operating efficiently at scale and continuously delivering leading well performance and cost efficiencies. We have secured access to infrastructure to support our growth plan and are actively managing price risk to maximize value from the Montney."
Encana is managing Western Canadian natural gas price risk by focusing on high-margin, condensate-rich wells and has secured a combination of commercial arrangements that protect cash flow and returns, provide firm access to multiple markets and maintain flexibility.
Continued leading returns with focus on condensate
By 2019, Encana expects its Montney asset will produce approximately 70,000 bpd of liquids, of which the majority will be high-margin condensate. Throughout the growth period the plan is fully self-funding. Over the course of its five-year plan, at flat $55 WTI and $3 NYMEX prices, Encana expects its drilling program will generate non-GAAP operating margins of approximately $14/boe.
Across Encana's condensate-rich areas of the Montney, the company's latest completion designs are delivering 60-day initial production rates of between 500 bpd to 1,200 bpd of condensate. Encana now has four wells in Pipestone, which have each produced over 100,000 bbl of condensate in under 100 days.
The company expects that its total net Montney production by 2019 will be over 70,000 bpd of liquids and 1.2 Bcfgd.
Significantly reduced AECO exposure
Encana has actively managed regional price risk through a combination of pipeline transportation and term financial basis hedging, which has resulted in significant price diversification of the company's Western Canadian natural gas production. Encana expects that less than a third of its 2018-2020 Western Canadian natural gas production will be exposed to the AECO benchmark. The remainder is expected to be physically exported to other markets or basis hedged relative to NYMEX.
The company's physical transportation portfolio includes approximately 100 MMcfgd to Malin and Sumas (Pacific Northwest), approximately 80 MMcfgd to Chicago and 316 MMcfgd to Dawn, Ontario, with the latter being the result of the most recent TransCanada Mainline open season (and subject to Canadian National Energy Board approval). On a delivered basis, Encana's Western Canadian natural gas will arrive at Dawn, Ontario, at significantly less cost than competing U.S. natural gas. On average, from 2018 to 2020 the company expects to sell approximately 500 MMcfgd of its physical gas in the Pacific-Northwest, Chicago or Dawn.
Encana's long-term financial basis hedge programs further contribute to diversification away from the AECO market. The company has hedged about 475 MMcfgd of AECO basis for the 2018 to 2020 period at approximately NYMEX less $0.87 per thousand cubic ft (Mcf), a level strongly supportive of the company's development plans in Western Canada.
Focused on creating further upside to its five-year plan, Encana is actively working to create further upside to its five-year plan.
The company expects that by continuing to harness the competitive advantages of its multi-basin portfolio and its relentless focus on innovation and efficiency, it will continue to deliver better wells and further grow its premium return well inventory. Within its Montney asset, the company is working to unlock additional growth opportunities in the Cutbank Ridge area beyond 2018 and evaluate further oil and condensate growth in Pipestone, as well as the stacked pay potential of the Montney zone within the Duvernay.
