Wednesday, October 24, 2012

Encana - Q3-2012 Results


Encana Management Discusses Q3 2012 Results - Earnings Call Transcript

October 24, 2012  

Tuscaloosa comments only:

We had tremendous interest in all of our joint venture offerings to date and fully expect to meet or exceed our targets. However, there are significant assets available for joint venture in both the Canadian and U.S. marketplace. As such, this may limit the size of the packages that can be dealt on and extend the time that it may take to complete a transaction.

For example, we've been advised that our combined Tuscaloosa Marine Shale, Eaglebine and Mississippian Lime package may be too large for most interested parties at this time, and so we are allowing the plays to be bid on individually. The value of Encana's joint venture offerings and asset packages greatly exceed the $1.5 billion to $2 billion net divestitures needed to meet our combined 2012 guidance and 2013 target, allowing us to be highly selective in the deals we choose to transact on.

Encana's motivation in completing joint venture transaction varies depending on the assets involved. In the case of the Duvernay, our early light oil plays in the USA division, the primary driver is to de-risk our capital program and accelerate the pace of which we can reach commerciality. With partnerships such as those that we've fostered with KOGAS and Mitsubishi, the plays involved have been largely delineated and the majority of the exploration risk has been removed. In other words, we achieved immediate value recognition for reserves and contingent resources associated with these types of assets.

Randall K. Eresman
Do you want to talk about Tuscaloosa as well and the Eaglebine?
Eric D. Marsh
Could. In the TMS, we have 2 rigs running. We have 2 wells completing, and let's see. We have one that's just about to come on. So we should have additional production on probably in the next couple of weeks. In the Eaglebine, we've had one rig running in the Eaglebine really drilling mostly in that Gresham area. It's going well. We're pleased with the results there. We have 2 additional wells that we'll be bringing on here this next week.
Brian Singer - Goldman Sachs Group Inc., Research Division
In the operational update in the press release, you indicated a couple of things. The Duvernay condensate yields were very promising, that some of the wells in the Eaglebine are exceeding expectations and that the Tuscaloosa focus is on reducing drilling cost. Can you give us a more specific update and perhaps, in the Eaglebine, holistic update on the well results versus your expectations and the cost trends?
Randall K. Eresman
Okay, do you just want that on the Eaglebine?
Brian Singer - Goldman Sachs Group Inc., Research Division
I guess for the Duvernay, Eaglebine and Tuscaloosa. Illustrating some of the more general remarks that you made on your release and then in the Eaglebine, specifically, you talk about some of the wells, maybe saying [ph] it's a little bit more holistic.
Randall K. Eresman
Okay, we'll start with Eric. Okay.
Eric D. Marsh
I think on the Eaglebine, Brian, I think the comment really is, is that like any place you drill, you have some that do better than others. And out of the wells we've done, we've had 3 or 4 of them that have been really good wells, and we'll give you an update on that probably in the fourth quarter. But overall, costs are in line; well performance is pretty much right online with our expectation, plus or minus; and then the area appears to be fairly honest as far as our drilling completion work. I think, in the TMS, I think it's all about the cost, it's all about working on our drilling cost and reducing the trouble times that Jeff just referred to.
Jeff E. Wojahn
Yes, maybe I can jump in as well, Brian. On TMS, one of the exciting things is that -- and we said this at Investor Day, and I'll maybe repeat it, a number of the wells that we drilled, some of the longer horizontals, were pretty good, pretty close to our target type curves. And we have a target type curve for that area of around 730,000 barrels EUR. A couple of our wells appear to be, with reasonable extrapolation of future declines, right on target. So the TM -- and the other thing we talked about at Investor Day is we've also appraised the reservoir or our land base pretty well. We have wells 25 miles apart and have similar production performance characteristics. So we're pretty confident about the resource potential of the TMS. And that it's a very, very large resource potential. Now, our focus is moving away from appraisal to sort of attack a target cost. And we're targeting to get our cost in that $13 million, $14 million, $15 million range. And I said this at Investor Day, we just drilled today along lateral 7,500-foot horizontal, 30-stage completion in the Haynesville that we brought on kind of mid-year this year. And those costs were in that range. So I have every confidence in our team's ability to replicate their performance that they've done in the Haynesville, because we're really talking about 13,000-foot depths with the same kind of challenges. So that's not to say that it's a slamdunk, that we can just take our Haynesville program and move it to the TMS. There is differences in the local geology, but we're really talking about costs not resource when it comes to TMS, which I feel very confident in.
Randall K. Eresman
The only package that we are changing right now is splitting up the combined 3 property package in the U.S., The Eaglebine, Tuscaloosa, Mississippian package and allowing bids to meet separately on those. We are though, as well, considering the possibility of some of our mature acreage. If we could do a direct sale, we might create some designer packages that might fit the market. But we haven't ruled those out yet.
Mark Polak - Scotiabank Global Banking and Markets, Research Division
Okay, great. And last for me just going through the release today and I'm looking at the planned number of wells for the sort of emerging oil and liquids-rich plays and comparing that to prior numbers, some of them looks like you've increased the number of planned wells this year and others, it's come down slightly. Is it fair to infer from that areas where you're having better than expected results and worse than expected results or are there other reasons that you'd be sort of shifting those plans around?
Randall K. Eresman
Yes, I'd say there generally are other reasons, and I can have Jeff talk a little bit about our changing plans in the TMS, for example.
Jeff E. Wojahn
Yes, Jeff Wojahn here, Mark. The TMS and the Eaglebine, one of the things we're very cognizant when we rolled out the program is that we did want operationally out step our learnings. And in the TMS, we've had some challenges or we've identified a challenge around well lower [ph] stability. And so we took a timeout while we've got our experts together from across the company to develop strategies rather than going ahead and just drilling money with old strategies that we thought would be of high risk. Likewise, in the Eaglebine as well, we went ahead with a one rig program because we thought that, that would be in line with our ability to learn from the information that we were gathering. So I think it's more of a function of prudence and discipline by the teams, on how they evaluate the opportunities and mostly that's how we feel about it.
Randall K. Eresman
And so far -- and the results we've had on the more recent TMS wells have proved that we have a good strategy.
Jeff E. Wojahn
Right, right. We have a number of drilling strategies, and we're sort of getting the early results on that. And so far, they corroborate the hypothesis that the teams have come forward relative to improving cost and decreasing drilling times. So we're making good progress. It's kind of slow and steady and we're hopefully trying not to outspend our learnings, and that's really what we want to do.
Mark Polak - Scotiabank Global Banking and Markets, Research Division
That's great. On the flip side of that, areas where you guys have increased the number of planned wells is that just freeing up where areas you have slowed down you've got that money available on the budget and reallocating that or the just results exceeding expectations?
Randall K. Eresman
That is largely what has happened. Yes, it's been reallocated across the business.

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