Encana plays the waiting game

by Max Fawcett, Managing Editor
It’s one thing to have a bold vision. It’s quite another to be flexible enough to adapt it as circumstances require. That’s what Encana’s Randy Eresman appears to be doing, if the latest quarterly earnings conference call is any indication. In it, he backed away from an earlier pledge to double production per share over five years.

That ambitious objective was predicated on a forecast that NYMEX natural gas prices would be in the range of $6 to $7 per thousand cubic feet. But that hasn’t happened, and given the surge of supply in the North American natural gas market it doesn’t look like it will any time soon. As a result, Eresman has decided to take a different tack.

He’s not giving up on the goal, but he concedes that it will now take more time. In the interim, the company is focusing more heavily on natural gas liquids while continuing to explore the possibility of partnership agreements like the one it signed with PetroChina earlier this year. Encana has liquids content of 10 barrels per million cubic feet of natural gas, and that decreases their average supply cost by $0.30 to $0.50 per thousand cubic feet. Liquids production current makes up approximately 4 per cent of Encana’s total production volumes, but Eresman says the company plans to “significantly increase” its weighting in that area over the next few years. “Of our 2011 capital budget,” he told investors and analysts on the call, “about $1 billion is directed towards activities that will increase our future liquids recovery.”

A transcription of Encana’s first quarter earnings results conference call can be found here.

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