EnCana Corp. CEO Discusses Q3 2010 Earnings - Call Transcript

EnCana Corp. CEO Discusses Q3 2010 Earnings - Call Transcript
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EnCana Corp. (

ECA

)

Q3 2010 Earnings Call

October 20, 2010 01:00 pm ET

Executives

Ryder McRitchie - VP, IR

Randy Eresman - President & CEO

Jeff Wojahn - EVP & President, USA Division

Mike Graham - EVP & President, Canadian Division

Sherri Brillon - EVP & CFO

Bob Grant - EVP, Corporate Development, EH&S and Reserves

Renee Zemljak - EVP, Midstream, Marketing & Fundamentals

Analysts

Greg Pardy - RBC Capital Markets

Andrew Potter - CIBC

Brian Singer - Goldman Sachs

Mark Gilman - The Benchmark Company

Mark Polak - Scotia Capital

Bob Morris - Citigroup

Aaron Diamond - Highfields Capital

George Toriola - UBS

Judy Myrden - The Chronicle Herald

Amanda Fraser - AllNovaScotia.com

Shaun Polczer - Calgary Herald

Presentation

Operator

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» EnCana Corporation Q3 2009 Earnings Call Transcript

Good day ladies and gentlemen and thank you for standing by. Welcome to EnCana Corporation's third quarter 2010 results conference call. As a reminder, today's call is being recorded. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions). Members of the investment community will have the opportunity to ask questions first. At the conclusion of that session, members of the media may then ask questions. Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of EnCana Corporation. I would now like to turn the conference call over to Mr. Ryder McRitchie, Vice President of Investor Relations. Please go ahead Mr. McRitchie.

Ryder McRitchie

Thank you operator and hello from Denver. Welcome everyone to our discussion of EnCana's 2010 third quarter results. Before we get started I must refer you to the advisory on forward-looking statements contained in the news release as well as the advisory on page 49 of EnCana's annual information form dated February 18, 2010 the later of which is available on SEDAR.

I'd like to draw your attention in particular to the material factors and assumptions in those advisories. In addition I want to remind everyone that EnCana reports its financial results in US dollars and operating results according to US protocols which means that production, reserves and resources volumes are reported on an after royalty basis.

Accordingly, any reference to dollars, production and reserves or resources information in this call will be in US dollars and US protocols unless otherwise noted. To provide a clear understanding of the new post split EnCana the prior period, comparative information discussed in this conference call represents EnCana's financial and operating results on a pro forma basis.

In this pro forma presentation, the results associated with the assets and operations transferred to Cenovus Energy are eliminated from EnCana's consolidated results and adjustments specific to the split transaction are removed.

Financial information that reconciles EnCana's consolidated financial statements and pro forma financial statements can be found in EnCana's news release dated October 20, 2010 available on our website. Randy Eresman will start off with the highlights of our operating results today and then Jeff Wojahn, Executive Vice President and President of our USA Division and Mike Graham, Executive Vice-President and President of our Canadian Division will then touch on some highlights from each of their areas before turning the call over to Sherri Brillon, EnCana's Chief Financial Officer to discuss EnCana's financial performance. Following some closing comments from Randy, our leadership team will then be available for questions.

I will now turn the call over to Randy Eresman, EnCana's President and CEO.

Randy Eresman

Thank you Ryder and thanks everyone for joining us today. Today's call will highlight EnCana's performance during the third quarter of 2010. We've achieved strong financial and operating results this quarter and for the first nine months of the year. Fractions of the quarter averaged just over 3.3 billion cubic feet equivalent per day at 15% increase over third quarter 2009 pro forma volumes.

Natural gas production per share for the third quarter increased 19% compared to 2009 third quarter pro forma volumes. Despite benchmark natural gas prices that averaged $4.39 per million Btu's this quarter. Cash flow remained robust at $1.1 billion due to production growth and a strong commodity hedging program that resulted in average realized gas prices of $5.27 per thousand cubic feet.

Although we're pleased with our year-to-date performance, we are concerned with near term natural gas prices. Initially in EnCana's hedge position for the remainder of 2010 and going into 2011 is lower than it has been historically. These factors when combined with cost pressures and operational constraints that I'll speak to momentarily have brought us to the conclusion that we need to adjust our capital investment and production expectations for the remainder of the year. We've lowered our expected 2010 capital investment plans from $5 billion, down to $4.8 billion.

Average production guidance has also been decreased by about 50 million cubic feet equivalent per day to just over 3.3 billion cubic feet equivalent per day. This results in approximately 12% per share growth over in EnCana's 2009 average pro forma volumes. Our updated guidance is available on our corporate website. Primary reason for these adjustments to our corporate guidance is capacity constraints for completion services at our operation in Louisiana and East Texas. These constraints are delaying us from completing some of Haynesville wells in a cost efficient manner. This will affect our base of development in the near term as we will not pursue growth at any cost.

Currently our teams are working very hard to develop new and innovative solutions for managing our pumping equipment requirements including the development of new fit-for-purpose completions equipment. I expect that these efforts should cost effectively reduce our backlog of wells awaiting completion by the second half of next year.

Capital discipline, combined to the focus on increasing operating efficiencies are at the forefront of EnCana's growth strategy. Well, Jeff Wojahn and Mike Graham will speak more about some exciting initiatives we've undertaken to further reduce costs and improve operating efficiencies in their areas.

I'll now turn the call over to Jeff Wojahn, President of the USA division.

Jeff Wojahn

Thanks Randy, and good morning. In the USA division production volumes averaged just over 1.8 billion cubic feet equivalent per day for the quarter, a 16% increase over a year ago. This production growth is net of approximately 60 million cubic feet equivalent per day of net divestiture volumes. The USA division's year-over-year growth is partly due to bringing our 2009 capacity with actions back online earlier this year and is partly driven by successes across our entire portfolio, especially in our operations in the Haynesville Shale and in the Piceance Basin. The division's year-to-date operating cost of $0.56 per thousand cubic feet equivalent are approximately 7% below guidance due to continued operating efficiencies first implemented in 2009.

We are forecasting this trend to continue for the remainder of the year and as all of the operating teams are extremely focused on reducing costs.

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