Friday, February 12, 2010

EnCana: Update

EnCana released its quarterly numbers this week and had lots to say about the Haynesville and Mid-Bossier Shales.  With the company splitting into two and the E&P side staying "EnCana," the company is going to be dependent on the Haynesville and its Canadian shale plays for continued growth, especially now that the steadier, cash flow producing side of the business is no longer attached. 

The company's Haynesville strategy these days is to retain its leases and optimize its production techniques.  EnCana has 435,000 net acres and has plans to drill between 140 and 160 gross wells (~100 net) in 2010.  But combined with another 100 or so net wells in 2011, that will only secure about 165,000 of the 435,000 total acres.  That will leave lots of work on the back end to secure the rest of the acreage or they might end up farming it out to another producer.

As part of its strategy, the company is working towards a "gas factory" concept (a phrase that will be bandied around a lot over the next year or two), where EnCana optimizes production to reduce costs and time. The concept is summarized on the slide below:

EnCana maintains an expectation of an estimated ultimate recovery (EUR) from Haynesville wells of 7.5 Bcfe, as summarized on the type curve, compared with actual results, below:

EnCana was one of the first companies to tout the Middle Bossier Shale last summer.  Since then, the company has drilled two Mid-Bossier wells, including one in Red River Parish flowed at more than 19 MMcf/day in the initial production test with 8,500 psi flowing casing pressure.  The company expects to drill about ten (net) wells in the Mid-Bossier in 2010.

While these results are very good, they in some part distract EnCana from its land retention strategy because the company needs to drill Haynesville wells so it can hold the deepest rights on its acreage.  I think the company's drilling activity in the Mid-Bossier has more to do with generating some hard numbers on its Mid-Bossier acreage so it can book the reserves, thereby expanding its reserves base to be more attractive to investors.

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