EnCana Corporation Q1 2010 Earnings Call Transcript

EnCana Corporation Q1 2010 Earnings Call Transcript
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EnCana Corporation (ECA)

Q1 2010 Earnings Call

April 21, 2010 12:00 pm ET

Executives

Ryder McRitchie – VP IR

Randy Eresman – President & CEO

Sherri Brillon – EVP & CFO

Mike Graham – EVP & President Canadian Division

Jeff Wojahn – EVP & President USA Division

Renee Zemljak – EVP Midstream, Marketing & Fundamentals

Analysts

Greg Pardy – RBC Capital Markets

Brian Dutton – Credit Suisse

Andrew Fairbanks – Banc of America

Mark Polak – Scotia Capital

Mark Gilman – Benchmark

Brian Singer – Goldman Sachs

Peter Ogden – National Bank Financial

Richard Wyman – Canaccord Adams

Chris Theal – Macquarie Securities

Amanda Fraser – AllNovaScotia.com

Unspecified Individual – Reuters

Shaun Polczer – Calgary Herald

Nathan Vanderklippe – Globe and Mail

Kerry Tate – National Post

Presentation

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Good day ladies and gentlemen and welcome to EnCana Corporation's first quarter 2010 results conference call. (Operator instructions) Please be advised that this conference call may not\ be recorded or broadcast without the express consent of the 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

Welcome everyone to our discussion of EnCana’s 2010 first 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 latter 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 volumes and reserve, and resource amounts are reported on an after royalties basis. Accordingly, any reference to dollars, reserves, resources, or production 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 Synovus 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 April 21, 2010, available on our website.

Randy Eresman will start off with the highlights of our operating results a and then turn 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 thank you everyone for joining us today. Today’s conference call will highlight our strong performance in the first quarter of 2010 and reiterate the rationale for EnCana’s new high growth strategy.

During the first quarter of 2010 EnCana continued its focus on maintaining or improving margins to deliver growth and shareholder value despite low natural gas prices. Cash flow for the quarter was approximately $1.2 billion and operating earnings were $418 million.

In the first three months of this year we invested just over a billion dollars of our planned 2010 $4.5 billion capital program. This capital investment was worked to advance the development of several of the company’s key and emerging resource plays while at the same time generating strong production growth.

Our first quarter total production of approximately 3.3 Bcfe/d is inline with our full year 2010 guidance and we’re well positioned to achieve our expected exit rate production capacity of between 3.4 and 3.5 Bcfe/d.

This morning I’ll start with the Canadian division results before moving on to the results for our USA division. In Canada we invested approximately $543 million this quarter towards advancing the development of our key and emerging resource plays including the Horn River, Montney, and Deep Panuke.

Canadian division production for the quarter was approximately 1.3 Bcfe/d down 9% from this time last year due to divestitures that occurred in 2009 and early 2010 as part of our ongoing portfolio optimization program.

However this decline was partially offset by a very successful drilling program at our Bighorn key resource play as well as lower royalty rates seen in our Canadian divisions. At Bighorn we brought on 20 million wells during the quarter and our wells in this area have been outperforming our tight curves and as a results, we’ve experienced 15% year over year production growth.

In Horn River we continue to see exceptional results in terms of operating efficiencies as we advance our gas factory development approach to this emerging resource play. We plan to drill as many as 16 wells from a single pad while maintaining continuous operations 24 hours a day, seven days per week.

We’ve been drilling longer laterals, up to 8500 feet and longer, and developing more reservoir, up to four square miles per pad. As of March 31 we have drilled 12 of our planned 41 well drilling program in the Horn River for 2010 and we’ve completed frac operations on 75% of the first 16 well pad.

EnCana’s capital and operating costs of this emerging resource play have improved and we expect them to continue to do so. Later this month we’ll initiate the use of non-[potable] water from the Debolt formation as our primary hydraulic fracture fluid.

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