Thursday, April 23, 2009

EnCana: Update

For as much net acreage as Encana has leased in the Haynesville Shale (435,000 acres), the company hasn't been active in tooting its own horn about the progress it has made to date. But the quiet Canadian giant made news after its recent earnings conference call (transcript) and made news, by saying that it is doubling spending on the Haynesville Shale while cutting elsewhere and that it expects more than half of its gas production to come from the U.S. in the future.

EnCana CEO Randy Eresman told reporters that the costs of drilling in the U.S. is cheaper than in Canada, and EnCana plans to increase its Haynesville capital budget from $290 million to $850 million. EnCana looks at the Haynesville Play as a long term benefit for the company, but he noted that to be truly money making, the shale plays require gas prices to be between $6 and $8 per MMBtu. The company admitted that it is increasing its investment in the Haynesville Shale in an effort to hold the leases, which start expiring in 2011, but the additional investment is a testament to EnCana's belief in the long-term potential of the play.

From a results perspective, Encana (which is in a joint venture with Shell Oil) reported two new Haynesville completions:

- Bolan 1H: 15 Mmcfe/day two-day initial production

- Blackstone 12H: 21 Mmcfe IP

Projecting forward for 2009, Encana expects to drill 50 net wells in the Haynesville Play (the slide above from a presentation states 34 wells, but the 50 number comes from a recent conference call in which EnCana increased its Haynesville capital budget). The company has reported average well costs of $10 million, which it expects to reduce to about $8 million, which is about average across the play, in the coming year. Encana also provided some interesting comparative information across the various shale plays in which it participates. No big surprises: the Haynesville has stronger reserves and higher flow rates, but you have to drill deeper to get to the pay.

EnCana also noted that it has committed to 150 million cubic feet per day of capacity on the proposed Gulf South pipeline expansion and another 500 million cubic feet per day of capacity on the proposed ETC Tiger pipeline.

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