EnCana (ECA)

Q2 2010 Earnings Call

July 21, 2010 11:00 am ET


Randall Eresman - Chief Executive Officer, President and Director

Jeff Wojahn - Executive Vice President and President of USA Region

Ryder McRitchie - Vice President of Investor Relations

Sherri Brillon - Chief Financial Officer and Executive Vice President

Michael Graham - Executive Vice President and President of Canadian Foothills Division


Dan Healing

Brian Singer - Goldman Sachs Group Inc.

Andrew Fairbanks - BofA Merrill Lynch

Greg Pardy - RBC Capital Markets Corporation

Mark Polak - Scotia Capital Inc.

George Toriola - UBS Investment Bank

Mark Gilman - The Benchmark Company, LLC

Christopher Feltin - Macquarie Research

Amanda Fraser - AllNovaScotia.com

Robert Morris



Good day, ladies and gentlemen, and thank you for standing by. Welcome to EnCana Corporation's Second Quarter 2010 Results Conference Call. [Operator Instructions] 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 welcome everyone to our discussion of EnCana’s 2010 second 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 U.S. dollars and operating results according to U.S. 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 U.S. dollars and U.S. 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 July 21, 2010, available on our website.

Randy Eresman will start off with the highlights of our operating results; Mike Graham, Executive Vice President and President of our Canadian division; and Jeff Wojahn, Executive Vice President and President of our U.S. division, will then each speak to 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.

Randall Eresman

Thank you, Ryder, and thank you, everyone for joining us today. Today's call will highlight EnCana's performance during the second quarter of 2010. We're now at the midpoint of the year, and we're pleased with our results to date. EnCana's second quarter 2010 results were solid. Cash flow was $1.2 billion or $1.65 per common share diluted, and operating earnings were $81 million or $0.11 per common share diluted. Second quarter capital investments totaled $1.1 billion excluding acquisitions and divestitures.

During the first sixth months of the year, we've invested just over $2.1 billion of our planned $5 billion capital program. Year-to-date, cash flow was $2.4 billion. We've updated our 2010 corporate guidance, adding another $500 million to our annual capital budget. This additional investment will be used to advance the development of our key and emerging resource plays in Canada and the United States. Our 2010 production is ahead of target, we've increased our 2010 production guidance to average 3.365 Bcfe/d for the year. This equates to a 13.5% growth rate per share for 2010. As well, our year-to-date operating costs were 17% lower than guidance.

Accordingly, we reduced our operating cost guidance to $0.80 per Mcfe. We've adjusted our 2010 NYMEX pricing assumptions downward from $5.75 to $5 per Mcf, although our cash flow range remains unchanged at between $4.4 billion to $4.8 billion per year. Our updated guidance is available on our corporate website.

EnCana's quarterly average production volumes are more than 3.3 Bcfe/d, an 8% increase over 2009 second quarter pro forma volumes. On a per share basis, second quarter natural gas production increased about 12% compared to the second quarter of 2009.

I'll now turn the call over to Mike Graham, President of the Canadian division of EnCana to discuss the Canadian division results.

Michael Graham

Thanks, Randy. In the Canadian division production, volumes for the quarter were approximately 1.4 Bcfe/d, a 3% decrease over pro forma volume for the same period in 2009, and nearly a full 12% increase over first quarter of 2010 volumes. So essentially, we're up about 150 MMcf/d Q1 over Q2 in 2010.

The year-over-year decrease in volumes is primarily a result of divestitures, we sold back around 100 MMcf out of Canada in 2009. Whereas, our quarter-over-quarter production increase was due to steady growth, lower royalties and play optimization at Bighorn, Cutbank Ridge, which includes our Montney play and Greater Sierra, which includes the Horn River shale play. In the Horn River, EnCana net production averaged around 24 MMcfe/d during the quarter.

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