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Encana Management Discusses Q2 2012 Results - Earnings Call Transcript

Stocks in this article: ECA

With respect to production, second quarter natural gas volumes of 2.8 billion cubic feet per day. In the Canadian division volumes were primarily -- were lower primarily due to shut-in production and divestitures, which were partially offset by our successful drilling programs at Bighorn and in the Peace River Arch area.

USA division, volumes were lower primarily due to shut-ins and curtailed production, divestitures and natural declines, partially offset by our successful drilling programs in the Piceance and Jonah. The majority of our activities in the Rockies are supported by historical joint venture arrangements.

Average oil and NGL -- average oil and natural gas liquid production volumes of about 28,000 barrels per day for the quarter increased by about 4,000 barrels per day from the same period in 2011. The increase in liquids production volumes was primarily due to increased royalty interest volumes and successful drilling programs in our Peace River Arch area. We estimated that natural gas liquid volumes would have been about 5,000 barrels per day higher had the deep cut portion of the Musreau plant not been down for repairs during the quarter. The third-party midstream plants is expected to be back online by the end of July.

We recently provided a comprehensive operational update at our Investor Day held at the end of June. As such, we will not be providing any further operational updates or new well results at this time.

Under U.S. GAAP full cost accounting, the carrying cost of Encana's natural gas and oil properties is subject to a ceiling test on a quarterly basis. In the second quarter, we recorded a $1.7 billion after-tax impairment charge against our net earnings. The ceiling test impairments primarily resulted from the decline in the 12-months-trailing natural gas prices. Given the current forward strip, we expect that further declines in the 12-month average trailing natural gas prices will likely result in the recognition of future U.S. GAAP ceiling test impairments. I'd like to highlight that the impairment charge is noncash in nature and is not reflective of the fair value of the assets. Of note, the company's DD&A rate was not impacted in the quarter due to the impairment charge, but will be on a going-forward basis.

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