Encana signals higher capital budget for 2015, despite lower oil prices

CALGARY – Encana Corp. is signalling a big jump in capital spending for 2015, despite lower commodity prices, but some regions seem to be getting more love than others.

CEO Doug Suttles said Encana’s (TSX:ECA) budget for next year is still being worked out, with the final numbers expected to be finalized over the next month or so.

“But I do expect our budget to grow substantially from this year to next year because even in an US$80 or an US$85 oil price world, we’ll still see substantial cash flow growth from where we started,” he told a conference call with analysts to discuss Encana’s third-quarter results Wednesday.

“We don’t have the numbers just yet, but I would expect our activity to grow and I’d expect you to see the predominance of the activity focused on what we consider as our top four plays.”

The geologic formations on which Encana plans to focus include the Montney and Duvernay in Western Canada and the Eagle Ford and Permian in Texas.

For the other three “core operating areas” in Encana’s portfolio, the outlook is less certain.

In the Denver-Julesburg Basin in Colorado and the San Juan Basin in New Mexico, the challenge is achieving the necessary scale, said Suttles.

And in the Tuscaloosa Marine Shale, in Louisiana and Mississippi, high development costs are causing Encana to weigh its options. On the positive side, that formation produces high quality light oil and it has a prime location for getting that crude to market.

Encana sees three choices: go full speed ahead into developing the Tuscaloosa; ditch it or work on ways to drive down costs so that it can compete in a low oil price environment.

Also Wednesday, Encana said its Deep Panuke offshore natural gas platform in Nova Scotia will be down for maintenance longer than planned because of water coming out of the reservoir.

“Although we always expected the reservoir to produce water, recent levels were higher than we would have anticipated at this point in the productive life,” said Suttles.

Deep Panuke should be back on line around the beginning of December, after which it’s expected to produce between 140 million and 180 million cubic feet of gas per day — below its capacity of 300 million cubic feet.

Earlier Wednesday, Encana posted a huge jump in net income in the third quarter, boosted by the sale of its remaining stake in Prairie Sky Royalty Ltd. (TSX:PSK).

Net income was $2.8 billion, or $3.79 per share, up from $188 million or 25 cents per share Encana reported a year earlier.

Encana’s operating earnings, which strip out the effects of one-time items, totalled $281 million or 38 cents per share, up from $150 million or 20 cents per share in the third quarter of 2013.

Cash flow rose to $807 million, from $1.09 per share, from $660 million, or 89 cents per share.

During the quarter, Encana announced the acquisition of Texas-based Athlon Energy Inc. — a $7.1-billion deal that’s expected to close on Thursday.

It also announced an agreement to sell most of its remaining Clearwater assets in Alberta for about $605 million, with the transaction expected to close in the first quarter of 2015.

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