Encana Management Discusses Q1 2012 Results - Earnings Call Transcript

Encana (ECA)

Q1 2012 Earnings Call

April 25, 2012 1:00 pm ET


Ryder McRitchie - Vice President of Investor Relations

Randall K. Eresman - Chief Executive officer, President and Director

Sherri A. Brillon - Chief Financial officer and Executive Vice-President

Robert A. Grant - Executive Vice President of Corporate Development, EH&S and Reserves

Jeff E. Wojahn - Executive Vice President and President of USA Division

Michael G. McAllister - Executive Vice-President and Acting President of Canadian Division

Eric D. Marsh - Executive Vice-President and Interim President - Canadian Division

Unknown Executive -


Greg M. Pardy - RBC Capital Markets, LLC, Research Division

Andrew Potter - CIBC World Markets Inc., Research Division

Mark Polak - Scotiabank Global Banking and Market, Research Division

Michael P. Dunn - FirstEnergy Capital Corp., Research Division

George Toriola - UBS Investment Bank, Research Division

Robert Brackett

Robert Bellinski - Morningstar Inc., Research Division

Brian C. Dutton - Crédit Suisse AG, Research Division



Good day, ladies and gentlemen, and thank you for standing by. Welcome to Encana Corporation's First Quarter 2012 Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] 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 welcome, everyone, to our discussion of Encana's first quarter results for 2012.

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 39 of Encana's Annual Information Form dated February 23, 2012, 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. Encana reports its financial results in U.S. dollars. Accordingly, any reference to dollars, reserves, resources or production information in this call will be in U.S. dollars and after royalties unless otherwise noted.

In addition, for the first quarter of 2012, Encana adopted U.S. Generally Accepted Accounting Principles for financial reporting purposes, referred to as U.S. GAAP throughout this call. In 2011, the company prepared its financial statements in accordance with International Financial Reporting Standards, referred to as IFRS. The adoption of U.S. GAAP has not had an impact on the company's operations, strategic decisions or cash flow. Full year 2011 and 2010 reconciliations between IFRS and U.S. GAAP are available in Note 27 to the company's annual consolidated financial statements prepared in accordance with IFRS. In addition, the company has prepared supplemental U.S. GAAP financial information, including Encana's 2011 annual consolidated financial statements and selected 2011 quarterly financial information, which are available on the company's website at www.encana.com.

In an effort to better utilize your time on the call this morning, we have opted to condense the comments provided by our executive team before opening the call up for questions from the investment community and media. We have assumed that everyone on the call has read the news release issued earlier this morning.

Randy Eresman, Encana's President and CEO, will speak to some operating and financial highlights for the quarter and provide an update on Encana's outlook for the remainder of 2012. At the end of the prepared remarks, our leadership team will be available for questions.

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

Randall K. Eresman

Thank you, Ryder, and thank you, everyone, for joining us this morning. During the first quarter of 2012, Encana continued to generate strong cash flow despite further downward pressure on natural gas prices, which, toward the end of the quarter, was approaching the lowest levels in the last 10 years.

We generated cash flow for the quarter of over $1 billion, supported by our strong commodity price hedging program. Responding to the low natural gas price environment, I indicated during our year-end conference call in February that Encana would immediately take action to restrict or shut in about 250 million cubic feet per day of production after royalties. Our teams have determined where and how to best achieve the target, and we currently have in place voluntary capacity reductions, volumes that have been shut in or otherwise curtailed, which should enable us to meet that target.

The duration of Encana's capacity reductions is subject to a number of factors, including a recovery in natural gas prices, and that remains uncertain at this time. In addition to physical capacity reductions, our reduced capital investments in drying natural gas programs is expected to lower 2012 natural gas production by about 250 million cubic feet per day from our 2011 levels after royalties. The combined total natural gas volume reduction would remove about 600 million cubic feet per day off the market when royalty volumes are also taken into account, meeting our commitments as outlined in our guidance.

While we're slowing the pace of development of our dry natural gas assets, we are accelerating production from our oil and liquid-rich assets. Liquid production volumes during the first quarter grew to an average about 29,000 barrels per day. The impact of increased liquids extraction from deep cut facility expansions in Western Canada, as well as expected organic liquids production growth from our portfolio of oil and liquid-rich plays leaves us well positioned to achieve our guidance target of 28,000 barrels per day for the year.

Today's news release provides details on some of the encouraging results we've seen from plays such as the Tuscaloosa marine shale, the Eaglebine, the Michigan, Collingwood, Utica and the Duvernay shale. Our plan is to drill approximately 40 to 45 assessment wells in the first half of the year across our portfolio of emerging oil and liquid-rich plays. Currently, we're about halfway through that drilling program, and we plan to have more comprehensive well results from each of these plays to share with you at our Investor Day in June. But I'll say that we are very encouraged by the results we've seen so far.

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