Thursday, October 21, 2010

EnCana: Feeling the Pressure

EnCana released its third quarter earnings yesterday and was the second consecutive E&P company to note that  it is having trouble securing enough hydraulic fracturing equipment to complete a growing inventory of drilled wells.  In a cryptically worded press release, EnCana said that it is pursuing multiple strategies to try to keep completion costs low, including building its own fleet of "fit-for-purpose" completion equipment.  While that will be awesome in a couple of  years, it is not a short-term solution.  The unfortunate near-term reality is you have to pay up to get fracked.

As a result of the supplier cost hikes (charitably called "opportunistic pricing" on a conference call), the company will defer $200 million of its capital spending from 2010 into 2011.  EnCana will also reduce its production for the year.  EnCana has long-stated lofty expectations of production growth, but those ambitions likely have been tamped down with the increasing supplier costs and, worse, the current "unsustainably low" prices for natural gas.

Each day seems to bring worse news for gas prices. The Calgary Herald reported that Barclay's Capital lowered its 2011 price forecast to $3.94 and doesn't expect prices to come back over $5 until 2015.

No comments: