40-F 1 a14-4012_240f.htm 40-F

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 

FORM 40-F

 

(Check One)

 

[  ] Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

 

or

 

[X] Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2013

 

Commission file number 1-15226

 

ENCANA CORPORATION

(Exact name of registrant as specified in its charter)

 

Canada
(Province or other jurisdiction of
incorporation or organization)

 

1311
(Primary Standard Industrial
Classification Code Number (if
applicable))

 

Not applicable
(I.R.S. Employer
Identification Number (if applicable))

 

Suite 4400, 500 Centre Street S.E., P.O. Box 2850, Calgary, Alberta, Canada  T2P 2S5

(403) 645-2000
(Address and Telephone Number of Registrant’s Principal Executive Offices)

 

CT Corporation System, 111 8th Avenue, New York, NY  10011
(212) 894-8940

(Name, Address (Including Zip Code) and Telephone Number
(Including Area Code) of Agent For Service in the United States)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class
Common Shares

 

Name of each exchange on which registered
New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.     None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.     Debt Securities

 

For annual reports, indicate by check mark the information filed with this Form:

 

[X] Annual Information Form

 

[X] Audited Annual Financial Statements

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:  740,946,505

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

 

Yes X                        No    

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes X                        No    

 

The Annual Report on Form 40-F shall be incorporated by reference into or as an exhibit to, as applicable, each of the registrant’s Registration Statements under the Securities Act of 1933:  Form F-3 (File No. 333-187492), Form S-8 (File Nos. 333-124218, 333-85598, 333-140856 and 333-188758) and Form F-10 (File No. 333-181196).

 



 

FORM 40-F

 

Principal Documents

 

The following documents have been filed as part of this Annual Report on Form 40-F, beginning on the following page:

 

(a)

 

Annual Information Form for the fiscal year ended December 31, 2013;

 

 

 

(b)

 

Management’s Discussion and Analysis for the fiscal year ended December 31, 2013; and

 

 

 

(c)

 

Consolidated Financial Statements for the fiscal year ended December 31, 2013, prepared in accordance with United States generally accepted accounting principles.

 

40-F1



 

 

 

 

 

 

 

 

Encana Corporation

 

 

 

 

Annual Information Form

February 20, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Table of Contents

 

 

Introduction

2

Corporate Structure

3

General Development of the Business

4

Narrative Description of the Business

7

Canadian Division

8

USA Division

13

Market Optimization

16

Reserves and Other Oil and Gas Information

17

Acquisitions, Divestitures and Capital Expenditures

18

Competitive Conditions

19

Environmental Protection

19

Social and Environmental Policies

20

Employees

21

Foreign Operations

21

Directors and Officers

22

Audit Committee Information

25

Description of Share Capital

27

Credit Ratings

29

Market for Securities

30

Dividends

30

Legal Proceedings

31

Risk Factors

31

Transfer Agents and Registrars

39

Interest of Experts

39

Additional Information

39

Note Regarding Forward-Looking Statements

40

Note Regarding Reserves Data and Other Oil and Gas Information

41

Appendix A - Canadian Protocol Disclosure of Reserves Data and Other Oil and Gas Information

A-1

Appendix B - Report on Reserves Data by Independent Qualified Reserves Evaluators (Canadian Protocol)

B-1

Appendix C - Report of Management and Directors on Reserves Data and Other Information (Canadian Protocol)

C-1

Appendix D - U.S. Protocol Disclosure of Reserves Data and Other Oil and Gas Information

D-1

Appendix E - Audit Committee Mandate

E-1

 

 

Encana Corporation

1

 

Annual Information Form (prepared in US$)

 



 

 

Introduction

 

 

This is the Annual Information Form of Encana Corporation (“Encana” or the “Company”) for the year ended December 31, 2013. In this Annual Information Form, unless otherwise specified or the context otherwise requires, reference to “Encana” or to the “Company” includes reference to subsidiaries of and partnership interests held by Encana Corporation and its subsidiaries.

 

In this Annual Information Form, daily natural gas volumes are referenced in either thousands of cubic feet (“Mcf”) per day (“Mcf/d”), millions of cubic feet (“MMcf”) per day (“MMcf/d”), or billions of cubic feet (“Bcf”) per day (“Bcf/d”).  The term “liquids” is used to represent oil, natural gas liquids (“NGLs”) and condensate.  Daily liquids volumes are referenced in either barrels (“bbls”) per day (“bbls/d”), thousands of barrels (“Mbbls”) per day (“Mbbls/d”) or millions of barrels (“MMbbls”) per day (“MMbbls/d”).

 

Certain liquids volumes have been converted to billions of cubic feet equivalent (“Bcfe”) on the basis of one barrel (“bbl”) to six Mcf. Bcfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the wellhead. Given that the value ratio based on the current price of oil and NGLs as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

 

All financial information included in this Annual Information Form is prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). The Company’s annual audited Consolidated Financial Statements for the year ended December 31, 2013, including required comparative information for 2012 and 2011, have been prepared in accordance with U.S. GAAP.

 

Readers are directed to the sections titled “Note Regarding Forward-Looking Statements” and “Note Regarding Reserves Data and Other Oil and Gas Information”.

 

Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or to “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars.  All proceeds from divestitures are provided on a before tax basis.

 

 

Encana Corporation

2

 

Annual Information Form (prepared in US$)

 



 

 

Corporate Structure

 

 

Name and Incorporation

 

Encana Corporation is incorporated under the Canada Business Corporations Act (“CBCA”). Its executive and registered office is located at 4400, 500 Centre Street S.E., Calgary, Alberta, Canada T2G 1A6.

 

 

Intercorporate Relationships

 

The following table presents the name, the percentage of voting securities owned and the jurisdiction of incorporation, continuance or formation of Encana’s principal subsidiaries and partnerships as at December 31, 2013. Each of these subsidiaries and partnerships had total assets that exceeded 10 percent of Encana’s total consolidated assets or annual revenues that exceeded 10 percent of Encana’s total consolidated annual revenues as at December 31, 2013.

 

Subsidiaries & Partnerships

 

Percentage
Directly or
Indirectly
Owned

 

Jurisdiction of
Incorporation,
Continuance
or Formation

 

 

 

 

 

Encana USA Holdings

 

100

 

 

Delaware

Encana USA Investment Holdings

 

100

 

 

Delaware

3080763 Nova Scotia Company

 

100

 

 

Nova Scotia

Alenco Inc.

 

100

 

 

Delaware

Encana Oil & Gas (USA) Inc.

 

100

 

 

Delaware

Encana Marketing (USA) Inc.

 

100

 

 

Delaware

 

 

 

 

 

 

 

The above table does not include all of the subsidiaries and partnerships of Encana. The assets and annual revenues of unnamed subsidiaries and partnerships in the aggregate did not exceed 20 percent of Encana’s total consolidated assets or total consolidated annual revenues as at December 31, 2013.

 

As a general matter, Encana reorganizes its subsidiaries as required to maintain proper alignment of its business, operating and management structures.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

 

General Development of the Business

 

 

Encana was formed in 2002 through the business combination of Alberta Energy Company Ltd. (“AEC”) and PanCanadian Energy Corporation (“PanCanadian”). On November 30, 2009, Encana completed a corporate reorganization (the “Split Transaction”) to split into two independent publicly traded energy companies – Encana and Cenovus Energy Inc. (“Cenovus”).

 

Encana is a leading North American energy producer that is focused on developing its strong portfolio of diverse resource plays producing natural gas, oil and NGLs. Encana’s operations also include the marketing of natural gas, oil and NGLs.  All of Encana’s reserves and production are located in North America.

 

 

Operating Segments

 

As at December 31, 2013, Encana’s operating and reportable segments were: (i) Canadian Division; (ii) USA Division; and (iii) Market Optimization.

 

·             Canadian Division includes the exploration for, development of, and production of natural gas, oil and NGLs and other related activities within Canada. Resource plays in the Division include: Cutbank Ridge in northern British Columbia, Bighorn in west central Alberta, Peace River Arch in northwest Alberta, Clearwater in southern Alberta, and Greater Sierra in northeast British Columbia. In December 2013, the Deep Panuke natural gas facility located offshore Nova Scotia commenced commercial operations. Emerging plays in the Division include the Duvernay in west central Alberta.

 

·             USA Division includes the exploration for, development of, and production of natural gas, oil and NGLs and other related activities within the U.S. Resource plays in the Division include: Piceance in northwest Colorado, Jonah in southwest Wyoming, Haynesville in Louisiana, and Texas. Emerging plays in the Division include the DJ Niobrara in northern Colorado, the San Juan Basin in New Mexico and the Tuscaloosa Marine Shale in Louisiana and Mississippi.

 

·           Market Optimization activities are managed by the Midstream, Marketing & Fundamentals team, which is primarily responsible for the sale of the Company’s proprietary production and enhancing the associated netback price. Market optimization activities include third party purchases and sales of product to provide operational flexibility for transportation commitments, product type, delivery points and customer diversification.

 

Corporate and Other is not an operating segment and mainly includes unrealized gains or losses recorded on derivative financial instruments. Once the instruments are settled, the realized gains and losses are recorded in the operating segment to which the derivative instruments relate.

 

In 2014, Encana does not anticipate any significant change in reportable segments as a result of the business strategy announced in November 2013. However, the Company may realign certain plays to complement its capital allocation strategy, as described under the Business Objectives section of this Annual Information Form.

 

 

Encana Corporation

4

 

Annual Information Form (prepared in US$)

 



 

Recent Developments

 

Significant events which contributed to the development of Encana’s business over the last three years included the following:

 

2013

 

·             Appointed Doug Suttles as Encana’s President & Chief Executive Officer and Director of the Company in June 2013 and subsequently announced a realignment of the Company’s business strategy and corporate organizational structure in November 2013 to be implemented in 2014.

 

·             Announced plans to transfer Encana’s royalty business, whose assets comprise fee simple mineral title and certain royalty interests in lands located predominately in Alberta, into a separate company. Encana plans to subsequently divest a portion of its interest in the new company through an initial public offering (“IPO”) in mid-2014. Encana intends to retain a majority stake in the new company. The transaction is subject to approval by Encana’s Board of Directors, due diligence, favourable market conditions and stock exchange, regulatory and third party approvals.

 

·           Commenced production at the Deep Panuke natural gas facility located offshore Nova Scotia in August 2013 and reached commercial operation with the issuance of the Production Acceptance Notice in December 2013.

 

·           Completed the divestiture of assets for proceeds of approximately $685 million in the Canadian Division which primarily includes the sale of the Jean Marie natural gas assets in the Greater Sierra resource play.

 

·           Completed the sale of Encana’s 30 percent interest in the proposed Kitimat liquefied natural gas (“LNG”) export terminal in British Columbia in February 2013.

 

 

2012

 

·             Entered into a partnership agreement with a Mitsubishi Corporation subsidiary (“Mitsubishi”) to jointly develop certain Cutbank Ridge lands in British Columbia. Mitsubishi agreed to invest approximately C$2.9 billion for a 40 percent interest in the partnership, with C$1.45 billion received in February 2012. The remaining amount will be invested over the expected commitment period of approximately five years.

 

·           Entered into an agreement with a PetroChina Company Limited subsidiary (“PetroChina”) to jointly explore and develop certain Duvernay lands in Alberta. PetroChina agreed to invest approximately C$2.18 billion for a 49.9 percent working interest in the lands with C$1.18 billion received in December 2012. The remaining amount will be received over the expected commitment period of approximately four years.

 

·           Entered into an agreement with a Toyota Tsusho Corporation subsidiary (“Toyota Tsusho”) under which Toyota Tsusho agreed to acquire a royalty interest in natural gas production from a portion of Encana’s Clearwater resource play. Toyota Tsusho agreed to invest approximately C$600 million for a 32.5 percent gross overriding royalty, with C$100 million received in April 2012. The remaining amount will be received over the expected commitment period of approximately seven years.

 

·             Entered into a long-term joint venture agreement with a Nucor Corporation subsidiary (“Nucor”), under which Nucor will earn a 50 percent working interest in certain natural gas wells to be drilled over the next 20 years in the Piceance Basin in Colorado. Nucor agreed to pay its share of well costs plus a portion attributable to Encana’s interest.

 

·             Entered into a joint venture agreement with Exaro Energy III LLC (“Exaro”) in March 2012 under which Exaro agreed to invest approximately $380 million over the next five years to earn a 32.5 percent working interest in certain sections of the Jonah field in Wyoming.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

·             Renegotiated certain gathering and processing agreements which result in Encana receiving additional NGL volumes from the Company’s processed gas in the Piceance and Jonah areas in the U.S.

 

·             Closed the sale of two natural gas processing plants in British Columbia and Alberta for proceeds of approximately C$920 million in February 2012.

 

 

2011

 

·             Acquired various strategic exploration and evaluation lands and properties which complement existing assets within Encana’s portfolio, totaling $515 million. Land capture included additional acreage with potential oil and natural gas streams with associated liquids.

 

·             Acquired a 30 percent interest in the planned Kitimat LNG export terminal in British Columbia.

 

·           Completed divestitures for total proceeds of $891 million, which included Encana’s interest in the Cabin natural gas processing plant in British Columbia, the Fort Lupton natural gas processing plant in Colorado and the South Piceance natural gas gathering assets in Colorado.

 

·           Closed the majority of the sale of its North Texas natural gas producing assets for proceeds of $836 million.  In March of 2012, Encana completed the remainder of the sale and received additional proceeds of $114 million.

 

·             Entered into deep cut processing arrangements, which allow the Company to extract additional NGL volumes from its natural gas streams starting in 2012 at the Musreau plant in Bighorn and Gordondale plant in Peace River Arch.

 

 

Encana Corporation

6

 

Annual Information Form (prepared in US$)

 



 

 

Narrative Description of the Business

 

 

The following map outlines the location of Encana’s North American landholdings, resource plays and emerging plays as at December 31, 2013.

 

 

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Business Objectives

 

Encana’s operations are focused on exploiting long-life natural gas and oil formations.  Encana strives to identify early-stage, geographically expansive hydrocarbon-charged basins and then assembles a large land position to try to capture core resource opportunities. The Company’s operations are primarily located in Canada and the U.S.  All of Encana’s reserves and production are located in North America.

 

In November 2013, Encana announced a new strategy that is committed to growing long-term shareholder value through a disciplined focus on generating profitable growth. The Company is pursuing the following key business objectives:

 

·                  Balance the commodity portfolio

·                  Exercise a disciplined capital allocation strategy

·                  Maintain portfolio flexibility to respond to changing market conditions

·                  Improve capital and operational efficiency and reduce cost structure

·                  Preserve balance sheet strength

 

The Company has a history of leveraging technology to unlock resources and build the underlying productive capacity at a low cost. The Company’s resource play hub model is a manufacturing-style development approach, which utilizes integrated production facilities to develop resources by drilling multiple wells from central pad sites. Capital and operating efficiencies are achieved across Encana’s expansive portfolio through repeatable operations, optimizing equipment and processes, by applying continuous improvement techniques.

 

As part of the new strategy, Encana may realign certain plays to complement its capital allocation strategy.  In 2014, Encana’s capital allocation strategy is focused on accelerating growth from a limited number of high return, scalable projects, while optimizing production performance from the remainder of the Company’s resource base.

 

 

Canadian Division

 

As of December 31, 2013, the Canadian Division includes the exploration for, development of, and production of natural gas, oil and NGLs and other related activities within Canada. Resource plays in the Division include: Cutbank Ridge in northern British Columbia, Bighorn in west central Alberta, Peace River Arch in northwest Alberta, Clearwater in southern Alberta, and Greater Sierra in northeast British Columbia. In December 2013, the Deep Panuke natural gas facility located offshore Nova Scotia commenced commercial operations. Emerging plays in the Division include the Duvernay in west central Alberta. In 2014, as part of Encana’s new strategy, the Company may realign certain plays to complement its capital allocation strategy, as described in the Business Objectives section of this Annual Information Form.

 

In 2013, the Canadian Division had total capital investment of approximately $1,365 million and drilled approximately 390 net wells.  Production after royalties averaged approximately 1,432 MMcf/d of natural gas and approximately 30.4 Mbbls/d of oil and NGLs.  At December 31, 2013, the Canadian Division had an established land position in Canada of approximately 8.9 million gross acres (7.0 million net acres), including approximately 4.2 million gross undeveloped acres (3.2 million net acres).

 

Mineral rights on certain of Encana’s total net acreage are owned in fee simple mineral title, which means that the mineral rights are held by Encana in perpetuity and production is subject to a mineral tax that is generally less than the Crown royalty imposed on production from Crown land where the government owns the mineral rights. In November 2013, Encana announced plans to transfer fee simple mineral titles into a separate company and subsequently divest a portion of Encana’s interest in the new company through an IPO in mid-2014, as described in the Recent Developments section of this Annual Information Form.

 

 

Encana Corporation

8

 

Annual Information Form (prepared in US$)

 



 

The following tables summarize the Canadian Division landholdings, producing wells and daily production as at and for the periods indicated.

 

Landholdings

 

Developed
Acreage

 

Undeveloped
Acreage

 

Total
Acreage

 

Average
Working
Interest

(thousands of acres at December 31, 2013)

 

Gross

 

Net

 

Gross

 

Net

 

Gross

 

Net

 

Cutbank Ridge

 

309

 

167

 

642

 

334

 

951

 

501

 

53%

Bighorn

 

187

 

139

 

298

 

252

 

485

 

391

 

81%

Peace River Arch

 

289

 

169

 

497

 

428

 

786

 

597

 

76%

Clearwater

 

3,622

 

3,124

 

1,726

 

1,518

 

5,348

 

4,642

 

87%

Greater Sierra

 

50

 

28

 

394

 

334

 

444

 

362

 

82%

Other and emerging

 

190

 

159

 

690

 

350

 

880

 

509

 

58%

Total Canadian Division

 

4,647

 

3,786

 

4,247

 

3,216

 

8,894

 

7,002

 

79%

 

 

Producing Wells

 

 

Natural Gas

 

Oil

 

Total

(number of wells at December 31, 2013) (1)

 

Gross

 

Net

 

Gross

 

Net

 

Gross

 

Net

Cutbank Ridge

 

772

 

690

 

-

 

-

 

772

 

690

Bighorn

 

354

 

315

 

16

 

6

 

370

 

321

Peace River Arch

 

459

 

379

 

24

 

16

 

483

 

395

Clearwater

 

12,391

 

11,461

 

193

 

169

 

12,584

 

11,630

Greater Sierra

 

91

 

46

 

-

 

-

 

91

 

46

Other and emerging

 

33

 

19

 

-

 

-

 

33

 

19

Total Canadian Division

 

14,100

 

12,910

 

233

 

191

 

14,333

 

13,101

 

Note:

(1)          Figures exclude wells capable of producing, but not producing.

 

Production (Before Royalties)

 

Natural Gas
(MMcf/d)

 

Oil & NGLs
(Mbbls/d)

(average daily)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Cutbank Ridge

 

542

 

451

 

2.0

 

1.6

Bighorn

 

256

 

244

 

10.3

 

7.0

Peace River Arch

 

134

 

109

 

10.4

 

3.6

Clearwater

 

374

 

403

 

10.2

 

8.8

Greater Sierra

 

159

 

201

 

0.3

 

0.6

Other and emerging

 

45

 

1

 

0.7

 

0.2

Total Canadian Division

 

1,510

 

1,409

 

33.9

 

21.8

 

 

Encana Corporation

9

 

Annual Information Form (prepared in US$)

 



 

Production (After Royalties)

 

Natural Gas
(MMcf/d)

 

Oil & NGLs
(Mbbls/d)

(average daily)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Cutbank Ridge

 

506

 

433

 

1.8

 

1.5

Bighorn

 

255

 

242

 

8.9

 

5.8

Peace River Arch

 

133

 

108

 

8.7

 

2.9

Clearwater

 

335

 

374

 

9.9

 

8.6

Greater Sierra

 

156

 

200

 

0.3

 

0.5

Other and emerging

 

47

 

2

 

0.8

 

0.1

Total Canadian Division

 

1,432

 

1,359

 

30.4

 

19.4

 

 

Resource Plays and Activities in the Canadian Division

 

Cutbank Ridge

 

Cutbank Ridge is a resource play located in the Canadian Rocky Mountain foothills, southwest of Dawson Creek, British Columbia. Key producing horizons in Cutbank Ridge include the Montney, and to a lesser degree the Cadomin and Doig formations. The Montney is exclusively being developed with horizontal well technology. Significant improvements have been achieved with respect to horizontal well completions with the application of multi-stage hydraulic fracturing. In 2013, Encana drilled approximately 30 net wells in the area and production after royalties averaged approximately 506 MMcf/d of natural gas and approximately 1.8 Mbbls/d of NGLs.

 

At December 31, 2013, Encana controlled approximately 426,000 gross undeveloped acres (220,000 net acres) covering the deep basin Montney formation in British Columbia, with approximately 83,000 net acres located within Encana’s core development area near Dawson Creek. Encana has tested Montney extensively over the last several years and by applying advanced technology has reduced overall development costs significantly, achieving approximately 70 percent reduction in costs on a completed interval basis since 2006.

 

Encana has a partnership agreement with Mitsubishi to jointly develop certain Cutbank Ridge lands.  Under the agreement, Mitsubishi agreed to invest approximately C$2.9 billion for its 40 percent partnership interest, of which approximately C$1.8 billion has been received.  In addition to its 40 percent of the partnership’s future capital funding investment, Mitsubishi is required to invest the remaining amount of approximately C$1.1 billion over the remaining expected commitment period, thereby reducing Encana’s capital funding commitment to 30 percent of the total expected capital investment over that period. Encana proportionately consolidates 60 percent interest in the partnership, including reserves.

 

As at December 31, 2013, Encana has natural gas processing capacity of approximately 740 MMcf/d with six plants located in Alberta and British Columbia, with commitment terms ranging from two to twenty years and plant capacities from 50 MMcf/d to 200 MMcf/d. Of the total processing capacity, approximately 260 MMcf/d is used to process natural gas for the partnership with Mitsubishi.

 

Bighorn

 

Bighorn is a resource play located in west central Alberta. The focus is on exploiting multi-zone stacked Cretaceous sands in the Deep Basin. In 2013, Encana drilled approximately 21 net wells in the area and production after royalties averaged approximately 255 MMcf/d of natural gas and approximately 8.9 Mbbls/d of oil and NGLs. At December 31, 2013, Encana controlled approximately 298,000 gross undeveloped acres (252,000 net acres) in the resource play.

 

Encana has a 70 percent ownership interest in the Resthaven gas plant and a 50 percent ownership interest in the Kakwa gas plant, with combined processing capacity of approximately 160 MMcf/d (net 100 MMcf/d to Encana).  Encana has an agreement with an unrelated third party to expand the Resthaven plant’s gas processing and NGL extraction capacity by an additional 200 MMcf/d in two phases. Completion of the first phase is expected in mid-2014.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Encana has current processing capacity of approximately 235 MMcf/d at the Musreau plant under a seven year commitment with a third party. Current net liquids production from the deep cut facility is approximately 7.2 Mbbls/d after royalties.

 

Peace River Arch

 

Peace River Arch is a resource play located in northwest Alberta.  The focus is on the continued development of the Montney formation in Alberta.  In 2013, Encana drilled approximately 39 net wells in the area and production after royalties averaged approximately 133 MMcf/d of natural gas and approximately 8.7 Mbbls/d of oil and NGLs. At December 31, 2013, Encana controlled approximately 256,000 gross undeveloped acres (235,000 net acres) in the Montney formation.

 

Encana holds an approximate 60 percent ownership interest in the Sexsmith plant, which has a total capacity of approximately 210 MMcf/d (net 125 MMcf/d to Encana).  The Company also has current compression and gathering capacity of 61 MMcf/d under a 20 year commitment with a third party.  Under this agreement, the third party has agreed to complete an expansion project which will increase the capacity to 161 MMcf/d.  Completion is expected in 2014.

 

Encana has current processing capacity of approximately 90 MMcf/d at the Gordondale sour gas deep cut plant under a ten year commitment. The deep cut facility has averaged net liquids production of approximately 3.6 Mbbls/d after royalties.

 

Clearwater

 

Clearwater is a resource play that extends from the U.S. border to central Alberta and includes natural gas and oil resources. Natural gas development has been focused on the Horseshoe Canyon coals which is integrated with shallower sands and exploiting deeper targets using an integrated wellbore strategy. Encana is in the early stages of oil development from multiple oil horizons.

 

Encana has an agreement with Toyota Tsusho under which Toyota Tsusho will acquire a 32.5 percent gross overriding royalty interest over a five year period in natural gas production from a portion of Encana’s Clearwater resource play. Toyota Tsusho has invested C$227 million and is required to further invest approximately C$373 million over the remaining commitment period.

 

In 2013, Encana drilled approximately 238 net natural gas wells and 45 net oil wells.  Production after royalties averaged approximately 335 MMcf/d of natural gas and approximately 9.9 Mbbls/d of oil and NGLs.  At December 31, 2013, Encana controlled approximately 1.7 million gross undeveloped acres (1.5 million net acres) in the resource play.  Approximately 81 percent of the total net acreage landholdings in Clearwater are owned in fee simple mineral title.

 

In November 2013, Encana announced plans to transfer the Company’s royalty business, whose assets comprise fee simple mineral title and certain royalty interests in lands located predominately in Alberta, into a separate company. Encana plans to subsequently divest a portion of its interest in the new company through an IPO in mid-2014.

 

Greater Sierra

 

Greater Sierra is a resource play located in northeast British Columbia. The continued focus is on the development of the Devonian aged Horn River shales. In 2013, Encana drilled approximately five net wells in the area and production after royalties averaged approximately 156 MMcf/d of natural gas and approximately 0.3 Mbbls/d of oil and NGLs.

 

At December 31, 2013, Encana controlled approximately 193,000 gross undeveloped acres (159,000 net acres) in the Horn River Basin shales. Horn River Basin shales (Muskwa, Otter Park and Evie) within Encana’s focus area are upwards of 500 feet thick. At December 31, 2013, these shales have been evaluated with approximately 136 gross wells (14 vertical and 122 horizontal), 91 of which have been placed on long-term production (one vertical and 90 horizontal).  In 2013, Encana divested its acreage in the Jean Marie formation.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Encana has gas processing capacity of approximately 570 MMcf/d (net 285 MMcf/d) at various facilities in the area. In 2013, Encana completed the transfer of a processing commitment to a third party related to the Cabin natural gas processing plant located in British Columbia. Encana has an additional processing commitment related to a planned expansion of the Cabin plant for which commissioning and expansion was suspended in 2012.

 

Duvernay

 

The Duvernay is an emerging liquids play located in west central Alberta.  At December 31, 2013, Encana controlled approximately 492,000 gross undeveloped acres (263,000 net acres). In 2013, Encana drilled approximately 12 net exploration wells. Net production after royalties averaged 4 MMcf/d of natural gas and 0.7 Mbbls/d of liquids.

 

Encana has an agreement with PetroChina to jointly explore and develop certain Duvernay lands. Under the agreement, PetroChina agreed to invest approximately C$2.18 billion for a 49.9 percent working interest in the lands. PetroChina has invested approximately C$1.33 billion and will further invest approximately C$850 million over the remaining commitment period, which will be used to fund half of Encana’s capital funding commitment.

 

Atlantic Canada

 

Encana is the owner and operator of the Deep Panuke gas field located offshore Nova Scotia, approximately 250 kilometres southeast of Halifax on the Scotian shelf. Natural gas from Deep Panuke is produced and processed by an offshore Production Field Centre (“PFC”) which is designed to process up to 300 MMcf/d from four wells. Produced gas is transported to Goldboro, Nova Scotia, via subsea pipeline which interconnects with the Maritimes & Northeast Pipeline, where the natural gas is ultimately transported to markets in eastern Canada and the northeast U.S.

 

In December 2013, the PFC commenced commercial operation with the issuance of the Production Acceptance Notice.  In 2013, natural gas production after royalties averaged approximately 41 MMcf/d. Encana sells all natural gas produced from Deep Panuke under a long term physical sales contract at the prevailing market prices in that region.

 

At December 31, 2013, Encana controlled approximately 76,000 gross acres (32,000 net acres) in Atlantic Canada, which includes Nova Scotia and Newfoundland and Labrador. Encana operates six of its nine licenses in these areas and has an average working interest of approximately 42 percent.

 

 

Encana Corporation

12

 

Annual Information Form (prepared in US$)

 



 

USA Division

 

As of December 31, 2013, the USA Division includes the exploration for, development of, and production of natural gas, oil and NGLs and other related activities within the U.S.  Resource plays in the Division include: Piceance in northwest Colorado, Jonah in southwest Wyoming, Haynesville in Louisiana, and Texas. Emerging plays in the Division include the DJ Niobrara in northern Colorado, the San Juan Basin in New Mexico and the Tuscaloosa Marine Shale in Louisiana and Mississippi. In 2014, as part of Encana’s new strategy, the Company may realign certain plays to complement its capital allocation strategy, as described in the Business Objectives section of this Annual Information Form.

 

In 2013, the USA Division had total capital investment of approximately $1,283 million and drilled approximately 237 net wells.  Production after royalties averaged approximately 1,345 MMcf/d of natural gas and approximately 23.5 Mbbls/d of oil and NGLs.  At December 31, 2013, the USA Division had an established land position of approximately 3.1 million gross acres (2.6 million net acres) including approximately 2.4 million gross undeveloped acres (2.1 million net acres).

 

The following tables summarize the USA Division landholdings, producing wells and daily production as at and for the periods indicated.

 

Landholdings

 

Developed
Acreage

 

Undeveloped
Acreage

 

Total
Acreage

 

Average
Working
Interest

(thousands of acres at December 31, 2013)

 

Gross

 

Net

 

Gross

 

Net

 

Gross

 

Net

 

Piceance

 

273

 

254

 

592

 

545

 

865

 

799

 

92%

Jonah

 

19

 

19

 

115

 

103

 

134

 

122

 

91%

Haynesville

 

178

 

99

 

97

 

66

 

275

 

165

 

60%

Texas

 

14

 

9

 

93

 

54

 

107

 

63

 

59%

Other and emerging

 

219

 

171

 

1,494

 

1,312

 

1,713

 

1,483

 

87%

Total USA Division

 

703

 

552

 

2,391

 

2,080

 

3,094

 

2,632

 

85%

 

 

Producing Wells

 

 

Natural Gas

 

Oil

 

Total

(number of wells at December 31, 2013) (1)

 

Gross

 

Net

 

Gross

 

Net

 

Gross

 

Net

Piceance

 

3,726

 

3,060

 

6

 

2

 

3,732

 

3,062

Jonah

 

1,553

 

1,208

 

-

 

-

 

1,553

 

1,208

Haynesville

 

552

 

269

 

-

 

-

 

552

 

269

Texas

 

193

 

150

 

-

 

-

 

193

 

150

Other and emerging

 

2,083

 

1,340

 

187

 

163

 

2,270

 

1,503

Total USA Division

 

8,107

 

6,027

 

193

 

165

 

8,300

 

6,192

 

Note:

(1)          Figures exclude wells capable of producing, but not producing.

 

Production (Before Royalties)

 

Natural Gas
(MMcf/d)

 

Oil & NGLs
(Mbbls/d)

(average daily)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Piceance

 

533

 

556

 

5.9

 

2.5

Jonah

 

415

 

529

 

6.1

 

5.3

Haynesville

 

436

 

591

 

-

 

-

Texas

 

180

 

219

 

-

 

0.1

Other and emerging

 

101

 

113

 

16.8

 

6.2

Total USA Division

 

1,665

 

2,008

 

28.8

 

14.1

 

 

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Production (After Royalties)

 

Natural Gas
(MMcf/d)

 

Oil & NGLs
(Mbbls/d)

(average daily)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Piceance

 

455

 

475

 

5.1

 

2.2

Jonah

 

323

 

411

 

4.7

 

4.1

Haynesville

 

348

 

475

 

-

 

-

Texas

 

136

 

167

 

-

 

0.1

Other and emerging

 

83

 

94

 

13.7

 

5.2

Total USA Division

 

1,345

 

1,622

 

23.5

 

11.6

 

 

Resource Plays and Activities in the USA Division

 

Piceance

 

Piceance is a resource play located in northwest Colorado. The basin is characterized by thick natural gas accumulations primarily in the Williams Fork formation. In addition to Williams Fork, Encana has begun exploration drilling in the Niobrara and Mancos formations, which are thick shales predominant throughout the basin. In 2013, production after royalties averaged approximately 455 MMcf/d of natural gas and approximately 5.1 Mbbls/d of oil and NGLs. At December 31, 2013, Encana controlled approximately 592,000 gross undeveloped acres (545,000 net acres).

 

Encana has a long-term joint venture agreement with Nucor under which Nucor will earn a 50 percent working interest in certain natural gas wells to be drilled in Piceance over the commitment period.  Under the agreement, Nucor agreed to pay its share of well costs plus a portion attributable to Encana’s interest.

 

In addition, Encana has several other existing joint venture arrangements to develop portions of the Piceance Basin.  In 2013, Encana drilled approximately 85 net wells, of which 81 were drilled primarily using third party funds.  For the remaining term of the joint venture arrangements, it is expected that Encana will drill approximately 2,667 net wells which will be partially funded by third parties.

 

Encana has current processing capacity of approximately 280 MMcf/d under commitments with remaining terms of up to 13 years. In 2012, the Company renegotiated certain gathering and processing agreements, which resulted in Encana receiving additional NGLs volumes from the Company’s processed gas in the Piceance and Jonah areas.

 

Jonah

 

Jonah is a resource play located in the Green River Basin in southwest Wyoming. Production is from the Lance formation, which contains vertically stacked sands that exist at depths between 8,500 and 13,000 feet. In 2013, production after royalties averaged approximately 323 MMcf/d of natural gas and approximately 4.7 Mbbls/d of oil and NGLs.  At December 31, 2013, Encana controlled approximately 115,000 gross undeveloped acres (103,000 net acres).

 

Historically, Encana’s operations have been conducted in the over-pressured core portion of the field. Within the over-pressured area, Encana plans to drill the field to 10 acre spacing with higher densities in some areas. Outside of the over-pressured area, Encana owns approximately 114,000 gross undeveloped acres (101,000 net acres), where 40 acre and possibly 20 acre drilling potential exists.

 

Encana has two existing joint venture agreements whereby the partners earn working interest in certain areas of the Jonah field. In 2013, Encana drilled approximately 88 gross wells (49 net wells), all of which were drilled primarily using third party funds. Over the next two years, Encana expects to drill approximately 110 gross wells (64 net wells) primarily using third party funds under existing arrangements.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Haynesville

 

The Haynesville shale is a resource play located in Louisiana. The focus is on maximizing gas recovery in the Haynesville and Mid-Bossier horizons.  Encana has developed the lands using a multi-well pad approach in key areas. In 2013, Encana drilled approximately 19 net wells in the area and production after royalties averaged approximately 348 MMcf/d of natural gas. At December 31, 2013, Encana controlled approximately 97,000 gross undeveloped acres (66,000 net acres), with the majority of the leaseholds in north Louisiana being located in the DeSoto and Red River parishes.

 

Encana has current processing capacity in Haynesville of approximately 1,070 MMcf/d under commitment terms through to 2020. In 2012, Encana secured the regulatory approval of cross unit lateral wells, enabling horizontal wells with lengths of approximately 7,500 feet.

 

Texas

 

Texas is a resource play with operations primarily located in East Texas. The focus is on tight gas with multi-zone targets in the Bossier and Cotton Valley zones, as well as shale gas in the Haynesville and Mid-Bossier horizonsIn 2013, Encana drilled approximately one net well in Texas and production after royalties averaged approximately 136 MMcf/d of natural gas. At December 31, 2013, Encana controlled approximately 93,000 gross undeveloped acres (54,000 net acres).

 

DJ Niobrara

 

The DJ Niobrara is an emerging liquids play located in the DJ Basin in northern Colorado. The primary formation targets in the basin are the Codell, J-Sand and the Niobrara. At December 31, 2013, Encana controlled approximately 8,800 gross undeveloped acres (8,400 net acres). In 2013, Encana drilled approximately 34 net horizontal wells with an average effective length of 4,700 feet. Production after royalties averaged approximately 39 MMcf/d of natural gas and approximately 8.4 Mbbls/d of oil and NGLs.

 

San Juan

 

San Juan is an emerging oil play located in the San Juan Basin in New Mexico. The primary formation targets in the basin are the Gallup and Mancos silt.  Encana has established a significant land position in the play. At December 31, 2013, Encana controlled approximately 322,000 gross undeveloped acres (181,000 net acres). In 2013, Encana drilled approximately 19 net horizontal wells with an average effective length of 4,300 feet. Production after royalties averaged approximately 3 MMcf/d of natural gas and approximately 1.4 Mbbls/d of oil and NGLs.

 

Tuscaloosa Marine Shale

 

The Tuscaloosa Marine Shale is an emerging oil play located in Louisiana and Mississippi. Encana has established a significant land position in the play. At December 31, 2013, Encana controlled approximately 317,000 gross undeveloped acres (302,000 net acres). In 2013, Encana drilled approximately three net horizontal wells, with an average effective length of 5,944 feet. Production after royalties averaged approximately 1.1 Mbbls/d of oil and NGLs.

 

Other Activity

 

Encana has established a land position in the Eaglebine oil play located in the East Texas Basin. At December 31, 2013, Encana controlled approximately 59,000 gross undeveloped acres (57,000 net acres). In 2013, Encana drilled approximately six net horizontal wells, with an average effective length of 7,856 feet.

 

Encana has established a significant land position in the Collingwood/Utica Shale liquids play located in Michigan.  At December 31, 2013, Encana controlled approximately 387,000 gross undeveloped acres (387,000 net acres). In 2013, Encana drilled approximately two net horizontal wells, with an average effective length of 7,380 feet.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Market Optimization

 

Market Optimization activities are managed by Encana’s Midstream, Marketing & Fundamentals team, which is responsible for the sale of the Company’s proprietary production and enhancing the associated netback price. Market Optimization activities include third party purchases and sales of product to provide operational flexibility for transportation commitments, product type, delivery points and customer diversification.

 

Encana’s produced natural gas is primarily marketed to local distribution companies, industrials, other producers and energy marketing companies. Prices received by Encana are based primarily upon prevailing index prices for natural gas in the region in which it is sold. Prices are impacted by regional supply and demand for natural gas and by competing fuels in such markets.

 

Encana sells its oil, NGLs and condensate to markets in Canada and the U.S.  Sales are normally executed under spot, monthly evergreen and term contracts with delivery to major pipeline/sales hubs at current market prices. In addition, Encana holds interests in two power assets, the Cavalier and Balzac Power Stations in Alberta.

 

As part of ordinary business operations, Encana has a number of delivery commitments to provide natural gas under existing contracts and agreements. The majority of Encana’s production is sold under short term contracts at the relevant market price at the time that the product is sold. Encana sells all natural gas produced from Deep Panuke under a long term physical sales contract at prevailing market prices in that region. As at December 31, 2013, Encana had no material long term fixed price physical sales contracts or delivery contracts.

 

Encana seeks to mitigate the market risk associated with future cash flows by entering into various risk management contracts relating to produced natural gas, liquids and power.  Details of those contracts related to Encana’s various risk management positions are found in Note 21 to Encana’s audited Consolidated Financial Statements for the year ended December 31, 2013 which are available via the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and the Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) at www.sec.gov.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Reserves and Other Oil and Gas Information

 

Encana is required to provide reserves data prepared in accordance with Canadian securities regulatory requirements, specifically National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Certain reserves and oil and gas information in accordance with Canadian disclosure requirements are contained in Appendix A – Canadian Protocol Disclosure of Reserves Data and Other Oil and Gas Information. Additional disclosure required by NI 51-101 is included in the preceding sections of this Annual Information Form, and referenced accordingly herein. Select supplemental reserves and other oil and gas information disclosure is provided in accordance with U.S. disclosure requirements in Appendix D – U.S. Protocol Disclosure of Reserves Data and Other Oil and Gas Information. See “Note Regarding Reserves Data and Other Oil and Gas Information”.

 

The practice of preparing production and reserve quantities data under Canadian disclosure requirements (NI 51-101) differs from the U.S. reporting requirements. The primary differences between the two reporting requirements include:

 

·

the Canadian standards require disclosure of proved and probable reserves, while the U.S. standards require disclosure of only proved reserves;

 

 

·

the Canadian standards require the use of forecast prices in the estimation of reserves, while the U.S. standards require the use of 12-month average historical prices which are held constant;

 

 

·

the Canadian standards require disclosure of reserves on a gross (before royalties) and net (after royalties) basis, while the U.S standards require disclosure on a net (after royalties) basis;

 

 

·

the Canadian standards require disclosure of production on a gross (before royalties) basis, while the U.S. standards require disclosure on a net (after royalties) basis;

 

 

·

the Canadian standards require that reserves and other data be reported on a more granular product type basis than required by the U.S. standards; and

 

 

·

the Canadian standards require that proved undeveloped reserves be reviewed annually for retention or reclassification if development has not proceeded as previously planned, while the U.S. standards specify a five year limit after initial booking for the development of proved undeveloped reserves.

 

Since its formation in 2002, Encana has retained independent qualified reserves evaluators (“IQREs”) to evaluate and prepare reports on 100 percent of Encana’s natural gas, oil and NGLs reserves annually. In 2013, Encana’s Canadian reserves were evaluated by McDaniel & Associates Consultants Ltd. and GLJ Petroleum Consultants Ltd., and its U.S. reserves were evaluated by Netherland, Sewell & Associates, Inc. and DeGolyer and MacNaughton.

 

Encana’s Vice-President, Corporate Reserves & Competitor Analysis and six other staff under this individual’s direction oversaw the preparation of the reserves estimates by the IQREs. This internal staff consisted of four professional engineers, one engineering technologist and two business analysts with a combined relevant experience of over 100 years. The engineering staff were all members of the appropriate professional associations as well as being members of various industry associations such as the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers.

 

Encana has a Reserves Committee composed of independent board members that reviews the qualifications and appointment of the IQREs. The Reserves Committee also reviews the procedures for providing information to the IQREs. All booked reserves are based upon annual evaluations by the IQREs. Annually, the Reserves Committee recommends the selection of IQREs to the Board of Directors for its approval.

 

The evaluations by the IQREs are conducted from the fundamental petrophysical, geological, engineering, financial and accounting data. Processes and procedures are in place to ensure that the IQREs are in receipt of all relevant information. Reserves are estimated based on material balance analysis, decline analysis, volumetric calculations or a combination of these methods, in all cases having regard to economic considerations. In the case of producing reserves, the emphasis is on decline analysis where volumetric analysis is considered to limit forecasts to reasonable levels. Non-producing reserves are estimated by analogy to producing offsets, with consideration of volumetric estimates of in place quantities. All locations to which proved undeveloped reserves have been assigned are subject to a development plan adopted by Encana’s management.

 

 

Encana Corporation

17

 

Annual Information Form (prepared in US$)

 



 

Acquisitions, Divestitures and Capital Expenditures

 

Encana’s growth in recent years has been achieved through a combination of internal growth and acquisitions. Encana has a large inventory of internal growth opportunities and also continues to examine select acquisition opportunities to develop and expand its resource plays. The acquisition opportunities may include corporate or asset acquisitions. Encana may finance any such acquisitions with debt, equity, cash generated from operations, proceeds from asset divestitures or a combination of any of these sources.

 

The following table summarizes Encana’s net capital investment for 2013 and 2012.

 

($ millions)

 

 

 

 

2013

 

2012

 

Capital Investment

 

 

 

 

 

 

 

Canadian Division

 

 

 

1,365

 

1,567

 

USA Division

 

 

 

1,283

 

1,727

 

Market Optimization

 

 

 

3

 

7

 

Corporate & Other

 

 

 

61

 

175

 

 

 

 

 

2,712

 

3,476

 

Acquisitions

 

 

 

 

 

 

 

Canadian Division

 

 

 

28

 

139

 

USA Division

 

 

 

156

 

240

 

 

 

 

 

 

 

 

 

Divestitures

 

 

 

 

 

 

 

Canadian Division

 

 

 

(685

)

(3,770

)

USA Division

 

 

 

(18

)

(271

)

Corporate & Other

 

 

 

 

(2

)

(2

)

 

Net Acquisitions and Divestitures

 

 

 

 

(521

)

(3,664

)

 

Net Capital Investment

 

 

 

 

2,191

 

(188

)

 

 

Capital investment during 2013 reflected the Company’s disciplined capital spending which focused on investment in Encana’s highest return resource plays, investments in opportunities where development has demonstrated success and executing drilling programs with joint venture partners. Acquisitions primarily included land and property purchases with oil and liquids rich natural gas production potential.

 

Divestiture proceeds for 2013 in the Canadian Division included the sale of the Jean Marie natural gas assets in the Greater Sierra resource play in northeast British Columbia and other assets. For additional information, see “General Development of the Business – Recent Developments – 2013”.

 

 

Encana Corporation

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Competitive Conditions

 

All aspects of the oil and gas industry are highly competitive and Encana actively competes with other companies in the industry, particularly in the following areas:

 

·     Exploration for and development of new sources of natural gas, oil and NGL reserves;

 

·     Reserves and property acquisitions;

 

·     Transportation and marketing of natural gas, oil, NGLs, diluents and electricity;

 

·     Access to services and equipment to carry out exploration, development and operating activities; and

 

·     Attracting and retaining experienced industry personnel.

 

The oil and gas industry also competes with other industries focused on providing alternative forms of energy to consumers. Competitive forces can lead to cost increases or result in an oversupply of natural gas, oil or NGLs, each of which could have a negative impact on Encana’s financial results.

 

 

Environmental Protection

 

Encana’s operations are subject to laws and regulations concerning pollution, protection of the environment and the handling and transportation of hazardous materials. These laws and regulations generally require Encana to remove or remedy the effect of its activities on the environment at present and former operating sites, including dismantling production facilities and remediating damage caused by the use or release of specified substances.

 

The Corporate Responsibility, Environment, Health and Safety Committee of Encana’s Board of Directors reviews and recommends environmental policy to the Board of Directors for approval and oversees compliance with government laws and regulations. Monitoring and reporting programs for environmental, health and safety (“EH&S”) performance in day-to-day operations, as well as inspections and assessments, are designed to provide assurance that environmental and regulatory standards are met. Contingency plans are in place for a timely response to an environmental event and remediation/reclamation programs are in place and utilized to restore the environment.

 

Encana monitors developments in emerging climate change policy and legislation, and considers the associated costs of carbon in its strategic planning. The Corporate Responsibility, Environment, Health and Safety Committee of Encana’s Board of Directors reviews the impact of a variety of carbon constrained scenarios on Encana’s strategy with a current price range from approximately $10 to $80 per tonne of emissions, applied to a range of emissions coverage levels.

 

Encana expects to incur abandonment and site reclamation costs as existing oil and gas properties are abandoned and reclaimed. In 2013, expenditures for normal compliance with environmental regulations as well as expenditures beyond normal compliance were not material. Encana’s current estimate of the total undiscounted future abandonment and reclamation costs to be incurred over the life of the reserves is approximately $4.3 billion. As at December 31, 2013, Encana has recorded an asset retirement obligation of $966 million.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Social and Environmental Policies

 

Encana has a Corporate Responsibility Policy, an Environment Policy and a Health & Safety Policy (the “Policies”) that articulate Encana’s commitment to responsible development. The Policies apply to any activity undertaken by or on behalf of Encana, anywhere in the world, associated with the finding, development, production, transmission and storage of the Company’s products including decommissioning of facilities, marketing and other business and administrative functions. The Corporate Responsibility Policy articulates Encana’s commitment to conducting its business ethically, legally and in a manner that is fiscally, environmentally and socially responsible, while delivering strong financial performance. The Corporate Responsibility Policy has specific requirements in areas related to governance, people, environment, health and safety, engagement, and community involvement.

 

With respect to Encana’s relationship with the communities in which it does business, the Corporate Responsibility Policy states that Encana will: strive to be a good neighbour by contributing to the well-being of the communities where it operates, recognizing their differing priorities and needs; engaging, listening and working with stakeholders in a timely, respectful and meaningful way; and aligning its community investments with its business strategy and seek to provide mutually beneficial relationships with the community and non-governmental organizations.

 

With respect to human rights, the Corporate Responsibility Policy states that Encana will abide by all applicable workplace, employment, privacy and human rights legislation.  In addition, Encana will provide a respectful, inclusive workplace free from harassment, discrimination and intimidation.

 

The Environment Policy recognizes that responsible environmental practices contribute to long-term shareholder value creation and articulates Encana’s commitment to environmental stewardship. The Environment Policy outlines specific requirements in areas related to: compliance with environmental laws and regulations; environmental risk assessment and mitigation; air emissions management; water sourcing, handling and disposal; pollution prevention and waste minimization; and habitat, plant and wildlife disturbance.

 

The Health & Safety Policy recognizes that all occupational injuries and illnesses are preventable and states Encana’s goal of achieving a workplace free of recognized hazards, occupational injuries and illnesses. The Policy provides all personnel working on an Encana location with the authority and responsibility to stop work without repercussions when an unsafe situation is recognized or suspected.

 

The Policies and any revisions are approved by Encana’s Senior Management Team and its Board of Directors. Accountability for implementation of the Policies is at the operational level within Encana’s organizational structure. The operating teams have established processes to evaluate risks and programs have been implemented to minimize those risks. Coordination and oversight of the Policies resides with Encana’s Policy, Environment and Sustainability group.

 

Some of the steps that Encana has taken to embed the corporate responsibility approach throughout the organization include:

 

·

A comprehensive approach to training and communicating policies and practices and a requirement for acknowledgement and sign-off on key policies from the Board of Directors and employees;

 

 

·

An EH&S management system;

 

 

·

A security program to regularly assess security threats to business operations and to manage the associated risks;

 

 

·

A formalized approach to stakeholder relations with a standardized Stakeholder Engagement Guide and specific Aboriginal Community Engagement Guide;

 

 

·

Corporate responsibility performance metrics to track the Company’s progress;

 

 

·

An Environmental Innovation Fund with a mandate to make investments in projects that economically improve the environmental performance of the Company through the development and implementation of innovative technology.

 

 

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·

A comprehensive community investment program that contributes to charitable and non-profit organizations in the communities in which Encana operates and an employee program that matches employee donations up to $25,000 per employee, per year;

 

 

·

An Investigations Practice and an Investigations Committee to review and resolve potential violations of Encana policies or practices and other regulations;

 

 

·

An Integrity Hotline that provides an additional avenue for Encana’s stakeholders to raise their concerns, and a corporate responsibility website which allows people to write to the Company about non-financial issues of concern;

 

 

·

An internal corporate EH&S audit program that evaluates Encana’s compliance with the expectations and requirements of the EH&S management system;

 

 

·

A Business Code of Conduct which establishes Encana’s commitment to conducting business ethically and legally and to which employees, contractors and directors are held accountable; and

 

 

·

Related policies and practices such as an Anti-Fraud Policy, a Conflict of Interest Policy, a Prevention of Corruption Policy, an Alcohol and Drug Policy, a Political Contributions Policy, an Information Management Policy, an Acceptance of Gifts Practice and a Lobbying Practice which outline Encana’s expectations of employee, contractor and director behaviors that are consistent with leading ethical business practices.

 

In addition, Encana’s Board of Directors approves such policies, and is advised of significant contraventions thereof, and receives updates on trends, issues or events which could have a significant impact on the Company.

 

 

Employees

 

At December 31, 2013, Encana employed 3,303 employees as set forth in the following table.

 

 

 

Employees

 

Canadian Division

 

1,416

 

USA Division

 

1,342

 

Corporate

 

545

 

Total

 

3,303

 

 

 

 

 

 

The Company also engages a number of contractors and service providers.

 

 

Foreign Operations

 

As at December 31, 2013, all of Encana’s reserves and production were located in North America, which limits Encana’s exposure to risks and uncertainties in countries considered politically and economically unstable. Any operations and related assets outside North America may be adversely affected by changes in governmental policy, social instability or other political or economic developments which are not within the control of Encana, including the expropriation of property, the cancellation or modification of contract rights and restrictions on repatriation of cash.

 

 

Encana Corporation

21

 

Annual Information Form (prepared in US$)

 



 

 

Directors and Officers

 

 

The following information is provided for each director and executive officer of Encana as at the date of this Annual Information Form.

 

 

Directors

 

Name & Municipality of Residence

 

Director
Since
(1)

 

Principal Occupation

 

 

 

 

 

Clayton H. Woitas (5,7)

Calgary, Alberta, Canada

 

2008

 

Chairman

Encana Corporation

Chairman & Chief Executive Officer

Range Royalty Management Ltd.

(Private oil & gas company)

 

 

 

 

 

Peter A. Dea (3,5,6)

Denver, Colorado, U.S.A.

 

2010

 

President & Chief Executive Officer

Cirque Resources LP

(Private oil & gas company)

 

 

 

 

 

Claire S. Farley (3,5,6)

Houston, Texas, U.S.A.

 

2008

 

Member

KKR Management LLC

(Public global investment firm)

 

 

 

 

 

Fred J. Fowler (3,4)

Houston, Texas, U.S.A.

 

2010

 

Corporate Director

 

 

 

 

 

Suzanne P. Nimocks (2,4,5)

Houston, Texas, U.S.A.

 

2010

 

Corporate Director

 

 

 

 

 

David P. O’Brien, O.C.

Calgary, Alberta, Canada

 

1990

 

Corporate Director

 

 

 

 

 

Jane L. Peverett (2,5,6)

West Vancouver, British Columbia, Canada

 

2003

 

Corporate Director

 

 

 

 

 

Brian G. Shaw (2,4)

Toronto, Ontario, Canada

 

2013

 

Corporate Director

 

 

 

 

 

Douglas J. Suttles (8)

Calgary, Alberta, Canada

 

2013

 

President & Chief Executive Officer

Encana Corporation

 

 

 

 

 

Bruce G. Waterman (2,4)

Calgary, Alberta, Canada

 

2010

 

Corporate Director

 

 

 

 

 

 

Notes:

(1)          Denotes the year each individual became a director of Encana or one of its predecessor companies (AEC or PanCanadian).

(2)          Member of Audit Committee.

(3)          Member of Corporate Responsibility, Environment, Health and Safety Committee.

(4)          Member of Human Resources and Compensation Committee.

(5)          Member of Nominating and Corporate Governance Committee.

(6)          Member of Reserves Committee.

(7)          Ex officio non-voting member of all other committees. As an ex officio non-voting member, Mr. Woitas attends as his schedule permits and may vote when necessary to achieve a quorum.

(8)          As an officer of Encana and a non-independent director, Mr. Suttles is not a member of any Board Committees.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

Encana does not have an Executive Committee of its Board of Directors.

 

At the date of this Annual Information Form, there are 10 directors of the Company. All of the current directors were elected at the last annual meeting of shareholders held on April 23, 2013, except for Douglas J. Suttles, who was appointed by the Board of Directors effective June 10, 2013.  At the next annual meeting, shareholders will be asked to elect as directors each of the individuals listed in the above table, except for David P. O’Brien, who has reached the Company’s mandatory retirement age. The Company’s mandatory retirement age restrictions, which have been established by the Board of Directors, stipulate that a director may not stand for re-election after reaching the age of 71.

 

 

Executive Officers

 

Name & Municipality of Residence

 

Corporate Office

 

 

 

Douglas J. Suttles

Calgary, Alberta, Canada

 

President & Chief Executive Officer

 

 

 

Sherri A. Brillon

Calgary, Alberta, Canada

 

Executive Vice-President & Chief Financial Officer

 

 

 

David G. Hill

Denver, Colorado, U.S.A.

 

Executive Vice-President, Exploration & Business Development

 

 

 

Terrence J. Hopwood

Calgary, Alberta, Canada

 

Executive Vice-President & General Counsel

 

 

 

Michael G. McAllister

Calgary, Alberta, Canada

 

Executive Vice-President & Chief Operating Officer

 

 

 

D. Ryder McRitchie

Calgary, Alberta, Canada

 

Vice-President, Investor Relations & Communications

 

 

 

Renee E. Zemljak

Denver, Colorado, U.S.A.

 

Executive Vice-President, Midstream, Marketing & Fundamentals

 

 

 

 

 

Encana Corporation

23

 

Annual Information Form (prepared in US$)

 



 

During the last five years, all of the directors and executive officers have served in various capacities with Encana or its predecessor companies or have held the principal occupation indicated opposite their names except for the following:

 

Mr. Suttles joined Encana in June 2013. From March 2011 until June 2013, he was an independent businessman performing consulting services in the oil and gas industry and serving on the boards of Ceres, Inc. (a publicly traded energy crop company) and NEOS GeoSolutions (a privately held geosciences company). Mr. Suttles was Chief Operating Officer at BP Exploration & Production from January 2009 until March 2011.  From December 2006 until December 2008, Mr. Suttles was the President of BP Alaska.

 

Ms. Farley is a Member of KKR Management LLC, the general partner of KKR & Co. (“KKR”) as of December 2012, and was a Managing Director of KKR’s energy and infrastructure group from November 2011 to December 2012.  Prior to joining KKR as an employee, Ms. Farley co-founded RPM Energy LLC (a privately-owned oil and gas exploration and development company) created in September 2010 and partnered with KKR.  She was an Advisory Director of Jefferies Randall & Dewey (a private global oil and gas energy industry advisor) from August 2008 to September 2010 and was Co-President of Jefferies Randall & Dewey from February 2005 to August 2008. She was a Managing Partner of Castex Energy Partners (a private exploration and production limited partnership) from August 2008 to January 2009.

 

Mr. Fowler is a director of Spectra Energy Partners, LP (a public entity). He was Chairman of Spectra Energy Partners, LP from October 2008 until November 2013. He was President & Chief Executive Officer of Spectra Energy Corp. (a natural gas gathering, processing and mainline transportation company) from December 2006 to December 2008 and served as a director from December 2006 to May 2009.

 

Ms. Nimocks was a director (senior partner) with McKinsey & Company (a private global management consulting firm) from June 1999 to March 2010 and was with the firm in various other capacities since 1989, including as a leader in the firm’s Global Petroleum Practice, Electric Power & Natural Gas Practice, Organization Practice, and Risk Management Practice, as a member of the firm’s worldwide personnel committees for many years and as the Houston Office Manager for eight years.

 

Ms. Peverett was President and Chief Executive Officer of BC Transmission Corporation (“BCTC”) (electrical transmission) from April 2005 to January 2009.

 

Mr. Shaw has been a director of Patheon Inc. (a publicly listed provider of drug development and manufacturing services) since December 2009, Manulife Bank of Canada (a private chartered bank) since February 2012 and Manulife Trust Company (a private trust company) since February 2012.  Prior to that, Mr. Shaw was Chairman and Chief Executive Officer of CIBC World Markets Inc. from 2005 through 2008.

 

Mr. Waterman was Executive Vice President, International Development of Agrium Inc. (a public agricultural supply company) from February 2012 through January 2013.  From April 2011 through February 2012, Mr. Waterman was Executive Vice President and Chief Strategy Development & Investment Officer of Agrium and from April 2000 through April 2011 he was Senior Vice President, Finance & Chief Financial Officer of Agrium.

 

Mr. Hopwood was Senior Vice President and General Counsel of Suncor Energy Inc. (a public oil and gas company) from 2002 to February 2011.

 

All of the directors and executive officers of Encana listed above, as a group, beneficially owned or controlled or directed, directly or indirectly, as of February 12, 2014, an aggregate of 348,707 common shares representing 0.05 percent of the issued and outstanding voting shares of Encana, and held options to acquire an aggregate of 2,775,677 additional common shares.

 

Investors should be aware that some of the directors and officers of the Company are directors and officers of other private and public companies. Some of these private and public companies may, from time to time, be involved in business transactions or banking relationships which may create situations in which conflicts might arise. Any such conflicts shall be resolved in accordance with the procedures and requirements of the relevant provisions of the CBCA, including the duty of such directors and officers to act honestly and in good faith with a view to the best interests of the Company.

 

 

Encana Corporation

24

 

Annual Information Form (prepared in US$)

 



 

 

Audit Committee Information

 

 

The full text of the Audit Committee mandate is included in Appendix E of this Annual Information Form.

 

 

Composition of the Audit Committee

 

The Audit Committee consists of four members, all of whom are independent and financially literate in accordance with the definitions in National Instrument 52-110 Audit Committees. The relevant education and experience of each Audit Committee member is outlined below.

 

Suzanne P. Nimocks

 

Ms. Nimocks holds a Bachelor of Arts in Economics (Tufts University) and a Masters in Business Administration (Harvard Graduate School of Business). She is a Corporate Director. Ms. Nimocks is a director of Rowan Companies plc (a public international contract drilling services company), ArcelorMittal (a public international steel company) and Owens Corning (a global producer of residential and commercial building materials). She was a director (senior partner) with McKinsey & Company (a private global management consulting firm) from June 1999 to March 2010 and was with the firm in various other capacities since 1989, including as a leader in the firm’s Global Petroleum Practice, Electric Power & Natural Gas Practice, Organization Practice, and Risk Management Practice, as a member of the firm’s worldwide personnel committees for many years and as the Houston Office Manager for eight years.

 

Jane L. Peverett (Audit Committee Chair)

 

Ms. Peverett holds a Bachelor of Commerce (McMaster University) and a Master of Business Administration (Queen’s University), together with a designation as a Certified Management Accountant and a Canadian Security Analyst Certificate. She is also a Fellow of The Society of Management Accountants (FCMA). Ms. Peverett is a Corporate Director. She is a director of Northwest Natural Gas Company (a public natural gas distribution company), Canadian Imperial Bank of Commerce (one of Canada’s largest banks), the B.C. Ferry Authority, Associated Electric & Gas Insurance Services Limited (a private mutual insurance company), Postmedia Network Canada Corp. and Postmedia Network Inc. (a public publishing company). She is also the Audit Committee Chair of Canadian Imperial Bank of Commerce. She was President and Chief Executive Officer of BCTC (electrical transmission) from April 2005 to January 2009 and was previously Vice President, Corporate Services and Chief Financial Officer of BCTC from June 2003 to April 2005. In her 18-year career with the Westcoast Energy Inc./Duke Energy Corporation group of companies, she held senior executive positions with Union Gas Limited (Ontario), including President, President and Chief Executive Officer, Senior Vice President Sales & Marketing and Chief Financial Officer, among others.

 

Brian G. Shaw

 

Mr. Shaw is a Chartered Financial Analyst, holds a Masters of Business Administration (University of Alberta) and a Bachelor of Commerce (University of Alberta) and is a Corporate Director. Mr. Shaw is a director of Patheon Inc. (a publicly listed provider of drug development and manufacturing services), Manulife Bank of Canada (a private chartered bank) and Manulife Trust Company (a private trust company) and Ivey Canadian Exploration Ltd. (a private exploration company). He is also the Chairman of the Audit Committee of Patheon Inc. and a member of the Audit Committees of Manulife Bank of Canada and Manulife Trust Company. He has experience in corporate finance, capital markets, investing activities and corporate governance gained through his executive level position at CIBC World Markets Inc., which included his role as Chairman and Chief Executive Officer of CIBC World Markets Inc. from 2005 through 2008.

 

Bruce G. Waterman

 

Mr. Waterman holds a Bachelor of Commerce (Queen's University) and a designation as a Chartered Accountant.  He is also a Fellow of the Chartered Accountants (FCA). Mr. Waterman is a director of Enbridge Income Fund Holdings Inc. and a trustee of Enbridge Commercial Trust. He is also a director of Irving Oil Limited. He was Executive Vice President of Agrium Inc. (a public agricultural company), where he held senior roles as Chief Financial Officer, as well as in Business Development and Strategy, from April 2000 through to his retirement in January 2013. Prior to joining Agrium, Mr. Waterman was the Vice-President & Chief Financial Officer of Talisman Energy Inc. (a public oil and gas company) from January 1996 to April 2000.  Mr. Waterman also has extensive expertise in oil and gas exploration and production operations, having spent 15 years (1981 to 1996) at Amoco Corporation, including Dome Petroleum Limited, a predecessor company. At Amoco (a global chemical, oil and gas company which merged with British Petroleum in 1998), his roles included various positions in finance, accounting and business development.

 

 

Encana Corporation

25

 

Annual Information Form (prepared in US$)

 



 

The above list does not include Clayton H. Woitas who is an ex officio member of the Audit Committee.

 

 

Pre-Approval Policies and Procedures

 

Encana has adopted policies and procedures with respect to the pre-approval of audit and permitted non-audit services to be provided by PricewaterhouseCoopers LLP. The Audit Committee of the Board of Directors has established a budget for the provision of a specified list of audit and permitted non-audit services that the Audit Committee believes to be typical, recurring or otherwise likely to be provided by PricewaterhouseCoopers LLP. The budget generally covers the period between the adoption of the budget and the next meeting of the Audit Committee, but at the option of the Audit Committee it may cover a longer or shorter period. The list of services is sufficiently detailed as to the particular services to be provided to ensure that (i) the Audit Committee knows what services it is being asked to pre-approve; and (ii) it is not necessary for any member of management to make a judgment as to whether a proposed service fits within the pre-approved services.

 

Subject to the next paragraph, the Audit Committee has delegated authority to the Chair of the Audit Committee (or if the Chair is unavailable, any other member of the Committee) to pre-approve the provision of permitted services by PricewaterhouseCoopers LLP which have not otherwise been pre-approved by the Audit Committee, including the fees and terms of the proposed services (“Delegated Authority”). All pre-approvals granted pursuant to Delegated Authority must be presented by the member(s) who granted the pre-approvals to the full Audit Committee at its next meeting. The fees payable in connection with any particular service to be provided by PricewaterhouseCoopers LLP that has been pre-approved pursuant to Delegated Authority (i) may not exceed C$200,000, in the case of pre-approvals granted by the Chair of the Audit Committee; and (ii) may not exceed C$50,000, in the case of pre-approvals granted by any other member of the Audit Committee.

 

All proposed services, or the fees payable in connection with such services, that have not already been pre-approved must be pre-approved by either the Audit Committee or pursuant to Delegated Authority. Prohibited services may not be pre-approved by the Audit Committee or pursuant to Delegated Authority.

 

 

Encana Corporation

26

 

Annual Information Form (prepared in US$)

 



 

External Auditor Service Fees

 

The following table provides information about the fees billed to the Company for professional services rendered by PricewaterhouseCoopers LLP during fiscal 2013 and 2012.

 

 

(C$ thousands)

 

2013

 

2012

 

Audit Fees (1)

 

3,583

 

3,393

 

Audit-Related Fees (2)

 

312

 

132

 

Tax Fees (3)

 

415

 

361

 

All Other Fees(4)

 

4

 

4

 

Total

 

4,314

 

3,890

 

 

Notes:

(1)          Audit fees consist of fees for the audit of the Company’s annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements.

(2)          Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported as Audit Fees. During fiscal 2013 and 2012, the services provided in this category included reviews in connection with acquisitions and divestitures, research of accounting and audit-related issues and the review of reserves disclosure.

(3)          Tax fees consist of fees for tax compliance services, tax advice and tax planning. During fiscal 2013 and 2012, the services provided in this category included assistance and advice in relation to the preparation of corporate income tax returns.

(4)          During fiscal 2013 and 2012, the services provided in this category included the payment of maintenance fees associated with a research tool that grants access to a comprehensive library of financial reporting and assurance literature.

 

Encana did not rely on the de minimis exemption provided by Section (c)(7)(i)(C) of Rule 2-01 of Securities and Exchange Commission (“SEC”) Regulation S-X in 2013 or 2012.

 

 

 

Description of Share Capital

 

 

The Company is authorized to issue an unlimited number of common shares, an unlimited number of first preferred shares and an unlimited number of second preferred shares. As of December 31, 2013, there were approximately 740.9 million common shares outstanding and no preferred shares outstanding.

 

Common Shares

 

The holders of the common shares are entitled to receive dividends if, as and when declared by the Board of Directors of the Company. The holders of the common shares are entitled to receive notice of and to attend all meetings of shareholders and are entitled to one vote per common share held at all such meetings. In the event of the liquidation, dissolution or winding up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the common shares will be entitled to participate rateably in any distribution of the assets of the Company.

 

Encana has stock-based compensation plans that allow employees to purchase common shares of the Company. Option exercise prices approximate the market price for the common shares on the date that the options were issued. Options granted under the plans are generally fully exercisable between three to four years and expire five years after the grant date.

 

The November 30, 2009 Split Transaction was effected by way of an arrangement under the CBCA, under which the holders of common shares of Encana received one new Encana common share and one common share of Cenovus for each Encana common share previously held. Holders of the stock options of Encana became the holders of stock options of Encana and Cenovus, with the exercise price under the stock options being adjusted based on the relative trading prices of the Encana and Cenovus common shares.

 

 

Encana Corporation

27

 

Annual Information Form (prepared in US$)

 



 

The Company has a shareholder rights plan (the “Plan”) that was adopted to ensure, to the extent possible, that all shareholders of the Company are treated fairly in connection with any take-over bid for the Company. The Plan creates a right that attaches to each present and subsequently issued common share. Until the separation time, which typically occurs at the time of an unsolicited take-over bid, whereby a person acquires or attempts to acquire 20 percent or more of Encana’s common shares, the rights are not separable from the common shares, are not exercisable and no separate rights certificates are issued. Each right entitles the holder, other than the 20 percent acquirer, from and after the separation time and before certain expiration times, to acquire one common share at 50 percent of the market price at the time of exercise. The Plan was reconfirmed at the Company’s 2013 annual meeting of shareholders and must be reconfirmed at every third annual meeting thereafter.

 

 

Preferred Shares

 

Preferred shares may be issued in one or more series. The Board of Directors may determine the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares before the issue of such series. Holders of the preferred shares are not entitled to vote at any meeting of the shareholders of the Company, but may be entitled to vote if the Company fails to pay dividends on that series of preferred shares. The first preferred shares are entitled to priority over the second preferred shares and the common shares of the Company, and the second preferred shares are entitled to priority over the common shares of the Company, with respect to the payment of dividends and the distribution of assets of the Company in the event of any liquidation, dissolution or winding up of the Company’s affairs.

 

 

Encana Corporation

28

 

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Credit Ratings

 

 

The following information relating to Encana's credit ratings is provided as it relates to Encana's financing costs and liquidity.  Specifically, credit ratings affect Encana’s ability to obtain short-term and long-term financing and the cost of such financing.  Additionally, the ability of Encana to engage in certain collateralized business activities on a cost effective basis depends on the Company maintaining competitive credit ratings.  A reduction in the current ratings on the Company's debt by its rating agencies, particularly a downgrade below investment grade ratings, could adversely affect the Company’s cost of financing and its access to sources of liquidity and capital. In addition, changes in credit ratings may affect the Company’s ability to, and the associated costs of, entering into normal course derivative transactions for risk management activities.

 

The following table outlines the ratings issued by the respective rating agencies as of February 12, 2014.

 

 

Standard & Poor’s
Ratings Services
(“S&P”)

Moody’s Investors
Service (“Moody’s”)

DBRS Limited (“DBRS”)

Long-Term - Senior Unsecured

BBB

Baa2

BBB

Short-Term - Commercial Paper

A-3

P-2

R-2 (mid)

Outlook/Trend

Negative

Stable

Stable

 

Credit ratings are intended to provide investors with an independent measure of credit quality of any issue of securities. The credit ratings assigned by the rating agencies are not recommendations to purchase, hold or sell the securities nor do the ratings comment on market price or suitability for a particular investor. Any rating may not remain in effect for any given period of time or may be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant.

 

S&P’s long-term credit ratings are on a rating scale that ranges from AAA to D, which represents the range from highest to lowest quality. A rating of BBB by S&P is within the fourth highest of ten categories and indicates that the obligation exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the issuer to meet its financial commitments. S&P’s short-term Canadian commercial paper ratings are on a scale that ranges from A-1 (high) to D, which represents the range from highest to lowest quality. A rating of A-3 is the fifth highest of eight categories and indicates adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. A negative outlook means that a rating may be lowered.

 

Moody’s long-term credit ratings are on a rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality. A rating of Baa2 by Moody’s is within the fourth highest of nine categories and is assigned to obligations judged to be medium grade and subject to moderate credit risk.  As such, they may possess certain speculative characteristics. The addition of a 1, 2 or 3 modifier after a rating indicates the relative standing within a particular rating category. The modifier 1 indicates that the obligation ranks in the higher end of its rating category, the modifier 2 indicates a mid-range ranking and the modifier 3 indicates a ranking in the lower end of its rating category. Moody’s short-term credit ratings are on a rating scale that ranges from P-1 to NP, which represents the range from highest to lowest quality.  A rating of P-2 is the second highest of four categories and indicates that the issuer has a strong ability to repay short-term debt obligations.

 

DBRS’ long-term credit ratings are on a rating scale that ranges from AAA to D, which represents the range from highest to lowest quality. A rating of BBB by DBRS is within the fourth highest of ten categories and is assigned to obligations considered to be of adequate credit quality. The capacity for the payment of financial obligations is considered acceptable. DBRS’ commercial paper and short-term debt credit ratings are on a scale ranging from R-1 (high) to D, which represents the range from highest to lowest quality. A rating of R-2 (mid) is the fifth highest of ten categories and indicates that the short-term debt is of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable and the issuer may be vulnerable to future events or may be exposed to other factors that could reduce credit quality.

 

Encana has paid each of S&P, Moody’s, and DBRS their customary fees in connection with the provision of the above ratings.  Encana has not made any payments to S&P, Moody’s or DBRS over the past two years for services unrelated to the provision of such ratings.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

See “Risk Factors – A downgrade in Encana’s credit rating could increase its cost of capital and limit its access to capital, suppliers or counterparties” in this Annual Information Form.

 

 

 

Market for Securities

 

 

All of the outstanding common shares of Encana are listed and posted for trading on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange under the symbol “ECA”. The following table outlines the share price trading range and volume of shares traded by month in 2013.

 

 

 

Toronto Stock Exchange

 

 

New York Stock Exchange

 

 

 

Share Price Trading Range

 

Share

 

 

Share Price Trading Range

 

Share

 

 

 

High

 

Low

 

Close

 

Volume

 

 

High

 

Low

 

Close

 

Volume

 

 

 

(C$ per share)

 

(millions)

 

 

($ per share)

 

(millions)

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January

 

20.20

 

18.96

 

19.28

 

46.2

 

 

20.46

 

19.14

 

19.36

 

21.2

 

February

 

19.75

 

17.64

 

18.55

 

41.9

 

 

19.83

 

17.52

 

17.98

 

21.2

 

March

 

20.98

 

18.00

 

19.76

 

50.2

 

 

20.55

 

17.51

 

19.46

 

18.1

 

April

 

19.89

 

18.30

 

18.57

 

51.9

 

 

19.64

 

17.91

 

18.45

 

18.8

 

May

 

20.52

 

17.77

 

19.77

 

40.4

 

 

19.97

 

17.64

 

19.03

 

18.3

 

June

 

19.78

 

17.40

 

17.79

 

45.4

 

 

19.10

 

16.51

 

16.94

 

17.6

 

July

 

18.74

 

17.48

 

18.02

 

60.6

 

 

18.23

 

16.49

 

17.52

 

18.9

 

August

 

18.65

 

17.86

 

17.99

 

31.7

 

 

18.01

 

17.04

 

17.10

 

20.9

 

September

 

18.80

 

17.68

 

17.80

 

41.7

 

 

18.22

 

17.01

 

17.33

 

15.7

 

October

 

19.79

 

17.55

 

18.68

 

54.4

 

 

19.05

 

16.97

 

17.92

 

18.8

 

November

 

20.78

 

18.37

 

20.32

 

86.2

 

 

19.77

 

17.64

 

19.19

 

25.4

 

December

 

20.71

 

18.77

 

19.18

 

39.1

 

 

19.48

 

17.63

 

18.05

 

17.2

 

 

On March 25, 2013, Encana amended its Dividend Reinvestment Plan (“DRIP”) to permit the Company to issue to participating shareholders of the DRIP Encana common shares at a discount, as determined by the Board of Directors from time to time, to the average market price for the applicable dividend payment date.

 

On February 13, 2014, Encana announced that any future dividends in conjunction with the DRIP will be issued from Encana’s treasury without a discount to the average market price unless otherwise announced by Encana via news release.

 

 

 

Dividends

 

 

The declaration of dividends is at the discretion of the Board of Directors and is approved quarterly. For the first three quarters of 2013, Encana paid a quarterly dividend of $0.20 per share. For the fourth quarter of 2013, Encana paid a quarterly dividend of $0.07 per share ($0.67 per share annually). During 2012 and 2011, Encana paid a quarterly dividend of $0.20 per share ($0.80 per share annually).

 

 

Encana Corporation

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Legal Proceedings

 

 

Encana is involved in various legal claims and actions arising in the course of the Company’s operations.  Although the outcome of these matters cannot be predicted with certainty and there can be no assurance that such matters will be resolved in Encana’s favour, the Company does not expect these matters to have a material adverse effect on Encana’s financial position, cash flows or results of operations.  If an unfavourable outcome were to occur, there exists the possibility of a material adverse impact on the Company’s consolidated net earnings or loss in the period in which the outcome is determined.

 

See “Risk Factors – The Company is subject to claims, litigation, administrative proceedings and regulatory actions”.

 

 

 

Risk Factors

 

 

If any event arising from the risk factors set forth below occurs, Encana’s business, prospects, financial condition, results of operations, cash flows or the trading prices of securities and in some cases its reputation could be materially adversely affected. When assessing the materiality of the foregoing risk factors, Encana takes into account a number of qualitative and quantitative factors, including, but not limited to, financial, operational, environmental, regulatory, reputational and safety aspects of the identified risk factor.

 

A substantial or extended decline in natural gas or liquids prices could have a material adverse effect on Encana.

 

Encana’s financial performance and condition are substantially dependent on the prevailing prices of natural gas and liquids. Fluctuations in natural gas or liquids prices could have an adverse effect on the Company’s operations and financial condition and the value and amount of its reserves. Prices for natural gas and liquids fluctuate in response to changes in the supply and demand for natural gas and oil, market uncertainty and a variety of additional factors beyond the Company’s control.

 

Natural gas prices realized by Encana are affected primarily by North American supply and demand, weather conditions and by prices of alternate sources of energy (including refined product, coal, and renewable energy initiatives). A substantial or extended decline in the price of natural gas or a continued low price environment for natural gas could result in a delay or cancellation of existing or future drilling, development or construction programs or curtailment in production at some properties or could result in unutilized long-term transportation and drilling commitments, all of which could have an adverse effect on the Company’s revenues, profitability and cash flows.

 

Oil prices are largely determined by international supply and demand. Factors which affect oil prices include the actions of the Organization of Petroleum Exporting Countries, world economic conditions, government regulation, political stability in the Middle East and elsewhere, the foreign supply of oil, the price of foreign imports, the availability of alternate fuel sources, transportation and infrastructure constraints and weather conditions.  Historically, NGL prices have generally been correlated with oil prices, although they are determined based on supply and demand in international and domestic NGL markets.

 

Natural gas and oil producers in North America, and particularly in Canada, currently receive significantly discounted prices for their production relative to certain international prices due to constraints on their ability to transport and sell such production to international markets. A failure to resolve such constraints may result in continued discounted or reduced commodity prices realized by natural gas and oil producers, including Encana.

 

On at least an annual basis, Encana conducts an assessment of the carrying value of its assets in accordance with applicable accounting standards. If natural gas or liquids prices decline, the carrying value of Encana’s assets could be subject to financial downward revisions, and the Company’s net earnings could be adversely affected.

 

 

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Encana’s ability to operate and complete projects is dependent on factors outside of its control.

 

The Company’s ability to operate, generate sufficient cash flows, and complete projects depends upon numerous factors beyond the Company’s control. In addition to commodity prices and continued market demand for its products, these non-controllable factors include general business and market conditions, economic recessions and financial market turmoil, the overall state of the capital markets, including investor appetite for investments in the oil and gas industry generally and the Company’s securities in particular, the ability to secure and maintain cost effective financing for its commitments, legislative, environmental and regulatory matters, reliance on industry partners and service providers, unexpected cost increases, royalties, taxes, volatility in natural gas and liquids prices, the availability of drilling and other equipment, the ability to access lands, the ability to access water for hydraulic fracturing operations, weather, the availability of processing capacity, the availability and proximity of pipeline capacity, technology failures, accidents, the availability of skilled labour, and reservoir quality.

 

The tentative recovery from the global recession is creating ongoing fiscal challenges for the world economy. These conditions impact Encana’s customers and suppliers and may alter the Company’s spending and operating plans. There may be unexpected business impacts from this market uncertainty, including volatile changes in currency exchange rates, inflation, interest rates, and general levels of investing and consuming activity, as well as potential impact on the Company’s credit ratings, which could affect its liquidity and ability to obtain financing.

 

The Company undertakes a variety of projects including exploration and development projects and the construction or expansion of facilities and pipelines. Project delays may delay expected revenues and project cost overruns could make projects uneconomic.

 

All of Encana’s operations are subject to regulation and intervention by governments that can affect or prohibit the drilling, completion and tie-in of wells, production, the construction or expansion of facilities and the operation and abandonment of fields. Contract rights can be cancelled or expropriated. Changes to government regulation could impact the Company’s existing and planned projects.

 

The Company’s business is subject to environmental regulation in all jurisdictions in which it operates and any changes in such regulation could negatively affect its results of operations.

 

All phases of the natural gas and liquids businesses are subject to environmental regulation pursuant to a variety of Canadian, U.S. and other federal, provincial, territorial, state and municipal laws and regulations (collectively, “environmental regulation”).

 

Environmental regulation imposes, among other things, restrictions, liabilities and obligations in connection with the use, generation, handling, storage, transportation, treatment and disposal of chemicals, hazardous substances and waste associated with the finding, production, transmission and storage of the Company’s products including the hydraulic fracturing of wells, the decommissioning of facilities and in connection with spills,  releases and emissions of various substances to the environment. It also imposes restrictions, liabilities and obligations in connection with the management of fresh or potable water sources that are being used, or whose use is contemplated, in connection with natural gas and oil operations.

 

Environmental regulation also requires that wells, facility sites and other properties associated with Encana’s operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and changes to certain existing projects, may require the submission and approval of environmental impact assessments or permit applications. Compliance with environmental regulation can require significant expenditures, including expenditures for clean-up costs and damages arising out of contaminated properties and failure to comply with environmental regulation may result in the imposition of fines and penalties.

 

Although it is not expected that the costs of complying with environmental regulation will have a material adverse effect on Encana’s financial condition or results of operations, no assurance can be made that the costs of complying with environmental regulation in the future will not have such an effect.

 

 

Encana Corporation

32

 

Annual Information Form (prepared in US$)

 



 

A number of federal, provincial and state governments have announced intentions to regulate greenhouse gases and certain air pollutants. These governments are currently developing the regulatory and policy frameworks to deliver on their announcements. In most cases there are few technical details regarding the implementation and coordination of these plans to regulate emissions. However, the Canadian federal government has announced that it will align greenhouse gas emission reduction targets with the U.S.  The Canadian federal government has taken a sector-specific approach, and while progress has been made working with industry and the provinces on the development of oil and gas sector-specific regulations, the Federal government has not committed to a definitive timeline for the implementation or release of legislation. As it remains unclear what approach the U.S. federal government will take, or when, it is also unclear whether the U.S. federal government will implement economy-wide greenhouse gas emission legislation or a sector-specific approach, and what type of compliance mechanisms will be available to certain emitters. Currently, certain provinces and states, including Alberta and British Columbia, have implemented greenhouse gas emission legislation that impacts areas in which the Company operates. It is anticipated that other federal, provincial and state announcements and regulatory frameworks to address emissions will continue to emerge.

 

Additionally, the U.S. and Canadian federal governments and certain U.S. state and Canadian provincial governments are currently reviewing certain aspects of the scientific, regulatory and policy framework under which hydraulic fracturing operations are conducted. At present, most of these governments are primarily engaged in the collection, review and assessment of technical information regarding the hydraulic fracturing process and have not provided specific details with respect to any significant actual, proposed or contemplated changes to the hydraulic fracturing regulatory construct. However, certain environmental and other groups have suggested that additional federal, provincial, territorial, state and municipal laws and regulations may be needed to more closely regulate the hydraulic fracturing process, and have made claims that hydraulic fracturing techniques are harmful to surface water and drinking water sources. Chemical disclosure requirements have increased in many of the jurisdictions in which the Company operates.

 

On June 20, 2013, the U.S. Environmental Protection Agency (the “EPA”) announced it has suspended its study of the potential environmental impacts of hydraulic fracturing, including the impacts on drinking water sources and public health, at Encana's Pavillion natural gas field in Wyoming. The agency has stated that the results in its 2011 draft report were inconclusive and it does not plan to finalize, seek peer review of, or rely upon the conclusions of the draft report.  Further, no aspects of the draft report will be incorporated into the EPA's larger ongoing national study of hydraulic fracturing. Instead, the EPA will support additional scientific investigation of the Pavillion groundwater being led by the Wyoming Department of Environmental Quality and the Wyoming Oil and Gas Conservation Commission. Any implication of a potential connection between hydraulic fracturing and groundwater quality may potentially subject Encana to regulatory, operational and/or reputation risks.

 

In the state of Colorado, several cities including Boulder, Longmont, Fort Collins, Lafayette and Broomfield, as well as the County of Boulder, have passed local ordinances limiting or banning certain oil and gas activities, including hydraulic fracturing. These local rule-making initiatives have not significantly impacted the Company’s operations or development plans in the state and are not anticipated to have a negative impact on the Company’s operations in the future. On January 21, 2014, a ballot initiative was filed in the state seeking to transfer the authority to regulate all for-profit companies to local government and specifically stating that local ordinances pre-empt all international, federal and state laws, except for individual fundamental rights. Though broad in nature, the ballot initiative is understood to be primarily intended to restrict oil and gas development in the state. This and other possible measures could make certain Colorado jurisdictions inaccessible to drilling in the future. Therefore, it is possible that the Company’s operations in Colorado could be impeded should such initiatives succeed. Encana continues to work with state and local governments, academics and industry leaders to develop and respond to hydraulic fracturing related concerns in Colorado. The Company recognizes that additional hydraulic fracturing ballot initiatives are a possibility and will continue to monitor and respond to these developments in 2014.

 

Further, certain governments in jurisdictions where the Company does not currently operate have considered a temporary moratorium on hydraulic fracturing until further studies can be completed and some governments have adopted, and others have considered adopting, regulations that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing operations. Any new laws, regulations or permitting requirements regarding hydraulic fracturing could lead to operational delay, increased operating costs or third party or governmental claims, and could increase the Company’s cost of compliance and doing business as well as reduce the amount of natural gas that the Company is ultimately able to produce from its reserves.

 

 

Encana Corporation

33

 

Annual Information Form (prepared in US$)

 



 

As these federal and regional programs are under development, Encana is unable to predict the total impact of the potential regulations upon its business. Therefore, it is possible that the Company could face increases in operating costs or curtailment of production in order to comply with legislation governing emissions and hydraulic fracturing.

 

If Encana fails to acquire or find additional reserves, the Company’s reserves and production will decline materially from their current levels.

 

Encana’s future natural gas, oil and NGL reserves and production, and therefore its cash flows, are highly dependent upon its success in exploiting its current reserves base and acquiring, discovering or developing additional reserves. Without reserves additions through exploration, acquisition or development activities, the Company’s reserves and production will decline over time as reserves are depleted.

 

The business of exploring for, developing or acquiring reserves is capital intensive. To the extent cash flows from operations are insufficient and external sources of capital become limited, Encana’s ability to make the necessary capital investments to maintain and expand its natural gas, oil and NGL reserves will be impaired. In addition, there can be no certainty that Encana will be able to find and develop or acquire additional reserves to replace production at acceptable costs.

 

Encana’s reserves data and future net revenue estimates are uncertain.

 

There are numerous uncertainties inherent in estimating quantities of natural gas, oil and NGL reserves, including many factors beyond the Company’s control. The reserves data in this Annual Information Form represents estimates only. In general, estimates of economically recoverable natural gas, oil and NGL reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as product prices, future operating and capital costs, availability of future capital, historical production from the properties and the assumed effects of regulation by governmental agencies, including with respect to royalty payments, all of which may vary considerably from actual results. All such estimates are to some degree uncertain, and classifications of reserves are only attempts to define the degree of uncertainty involved.

 

For those reasons, estimates of the economically recoverable natural gas, oil and NGL reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. Encana’s actual production, revenues, taxes and development and operating expenditures with respect to its reserves may vary from such estimates, and such variances could be material.

 

Estimates with respect to reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves.

 

Furthermore, estimates with respect to the reserves to be developed and produced in the future are based upon certain expectations and assumptions, including the allocation of capital, which may be subject to change.

 

Encana is subject to risks associated with joint ventures and partnerships.

 

Some of Encana's projects are conducted through joint ventures, partnerships or other arrangements, where Encana is dependent on its partners to fund their contractual share of the capital and operating expenditures related to such projects. If these partners do not approve or are unable to fund their contractual share of certain capital or operating expenditures or otherwise fulfill their obligations, this may result in project delays or additional future costs to Encana, all of which may affect the viability of such projects.

 

These partners may also have strategic plans, objectives and interests that do not coincide with and may conflict with those of Encana. While certain operational decisions may be made solely at the discretion of Encana in its capacity as operator of certain projects, major capital and strategic decisions affecting such projects may require agreement among the partners. While Encana and its partners generally seek consensus with respect to major decisions concerning the direction and operation of the project assets, no assurance can be provided that the future demands or expectations of any party, including Encana, relating to such assets will be met satisfactorily or in a timely manner. Failure to satisfactorily meet such demands or expectations may affect Encana's or its partners’ participation in the operation of such assets or the timing for undertaking various activities, which could negatively affect Encana’s operations and financial results.

 

 

Encana Corporation

34

 

Annual Information Form (prepared in US$)

 



 

The Company may be unable to dispose of certain assets on attractive terms, and may be required to retain liabilities for certain matters.

 

The Company has identified certain assets, the disposition of which could increase capital available for other activities or reduce the Company’s existing indebtedness. Various factors could materially affect the Company’s ability to dispose of those assets or complete announced transactions including current commodity prices, the availability of purchasers willing to purchase certain assets at prices and on terms acceptable to the Company, approval by Encana’s Board of Directors, due diligence, favourable market conditions and stock exchange, regulatory and third party approvals.

 

The Company may also retain certain liabilities for certain matters in a sale transaction. The magnitude of any such retained liabilities or indemnification obligations may be difficult to quantify at the time of the transaction and could ultimately be material. Further, certain third parties may be unwilling to release the Company from guarantees or other credit support provided prior to the sale of the divested assets. As a result, after the sale of certain assets, the Company may remain secondarily liable for the obligations guaranteed or supported to the extent that the purchaser of the assets fails to perform its obligations.

 

The Company’s level of indebtedness may limit its financial flexibility.

 

As of December 31, 2013, the Company had total long-term debt of $6,124 million, with no outstanding balance under its revolving credit facilities. The terms of the Company’s various financing arrangements, including but not limited to the indentures relating to its outstanding senior notes and its revolving credit facilities, impose restrictions on its ability and, in some cases, the ability of the Company’s subsidiaries, to take a number of actions that it or they may otherwise desire to take, including (i) incurring additional debt, including guarantees of indebtedness; (ii) creating liens on the Company’s or its subsidiaries assets; and (iii) selling certain of the Company’s or its subsidiaries’ assets.

 

The Company’s level of indebtedness could affect its operations by:

 

·      requiring it to dedicate a portion of cash flows from operations to service its indebtedness, thereby reducing the availability of cash flow for other purposes;

 

·      reducing its competitiveness compared to similar companies that have less debt;

 

·      limiting its ability to obtain additional future financing for working capital, capital investments and acquisitions;

 

·      limiting its flexibility in planning for, or reacting to, changes in its business and industry; and

 

·      increasing its vulnerability to general adverse economic and industry conditions.

 

The Company’s ability to meet its debt obligations and service those debt obligations depends on future performance. General economic conditions, natural gas, oil and NGL prices, and financial, business and other factors affect the Company’s operations and future performance.  Many of these factors are beyond the Company’s control.  If the Company is unable to satisfy its obligations with cash on hand, the Company could attempt to refinance debt or repay debt with proceeds from a public offering of securities or selling certain assets.  No assurance can be given that the Company will be able to generate sufficient cash flow to pay the interest obligations on its debt, or that funds from future borrowings, equity financings or proceeds from the sale of assets will be available to pay or refinance its debt, or on terms that will be favourable to the Company.

 

A downgrade in Encana’s credit rating could increase its cost of capital and limit its access to capital, suppliers or counterparties.

 

Rating agencies regularly evaluate the Company, basing their ratings of its long-term and short-term debt on a number of factors. This includes the Company’s financial strength as well as factors not entirely within its control, including conditions affecting the oil and gas industry generally and the wider state of the economy. There can be no assurance that one or more of the Company’s credit ratings will not be downgraded.

 

 

Encana Corporation

35

 

Annual Information Form (prepared in US$)

 



 

The Company’s borrowing costs and ability to raise funds are directly impacted by its credit ratings. Credit ratings may be important to suppliers or counterparties when they seek to engage in certain transactions, including transactions involving over-the-counter derivatives. A credit-rating downgrade could potentially impair the Company’s ability to enter into arrangements with suppliers or counterparties, to engage in certain transactions, and could limit the Company’s access to private and public credit markets and increase the costs of borrowing under its existing credit facilities.  A downgrade could also limit the Company’s access to short-term debt markets, increase the cost of borrowing in the short-term and long-term debt markets, and trigger collateralization requirements related to physical and financial derivative liabilities with certain marketing counterparties, facility construction contracts, and pipeline and midstream service providers.

 

In connection with certain over-the-counter derivatives contracts and other trading agreements, the Company could be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of its credit rating. The occurrence of any of the foregoing could adversely affect the Company’s ability to execute portions of its business strategy, including hedging, and could have a material adverse effect on its liquidity and capital position.

 

Encana’s risk management activities could result in realized and unrealized losses.

 

The nature of the Company’s operations results in exposure to fluctuations in commodity prices. The Company monitors its exposure to such fluctuations and, where the Company deems it appropriate, utilizes derivative financial instruments and physical delivery contracts to mitigate the potential impact of declines in natural gas and liquids prices.

 

Under U.S. GAAP, derivative instruments that do not qualify or are not designated as hedges for accounting purposes are fair valued with the resulting changes recognized in current period net earnings. The utilization of derivative financial instruments may therefore introduce significant volatility into the Company’s reported net earnings.

 

The terms of the Company’s various hedging agreements may limit the benefit to the Company of commodity price increases. The Company may also suffer financial loss if the Company is unable to produce natural gas, oil or NGLs, or if counterparties to the Company’s hedging agreements fail to fulfill their obligations under the hedging agreements.

 

Encana’s operations are subject to the risk of business interruption and casualty losses. Our insurance may not fully protect us against these risks and liabilities.

 

The Company’s business is subject to all of the operating risks normally associated with the exploration for, development of and production of natural gas, oil and NGLs and the operation of midstream facilities. These risks include blowouts, explosions, fire, gaseous leaks, migration of harmful substances and liquid spills, acts of vandalism and terrorism, any of which could cause personal injury, result in damage to, or destruction of, natural gas and oil wells or formations or production facilities and other property, equipment and the environment, as well as interrupt operations.

 

In addition, all of Encana’s operations will be subject to all of the risks normally incident to the transportation, processing, storing and marketing of natural gas, oil, NGLs and other related products, drilling and completion of natural gas and oil wells, and the operation and development of natural gas and oil properties, including encountering unexpected formations or pressures, premature declines of reservoir pressure or productivity, blowouts, equipment failures and other accidents, sour gas releases, uncontrollable flows of natural gas, oil or well fluids, adverse weather conditions, pollution and other environmental risks.

 

We maintain insurance against some, but not all, of these risks and losses. The occurrence of a significant event against which Encana is not fully insured could have a material adverse effect on the Company’s financial position.

 

Encana does not operate all of its properties and assets.

 

Other companies operate a portion of the assets in which Encana has ownership interests. Encana will have limited ability to exercise influence over operations of these assets or their associated costs. Encana’s dependence on the operator and other working interest owners for these properties and assets, and its limited ability to influence operations and associated costs, could materially adversely affect the Company’s financial performance. The success and timing of Encana’s activities on assets operated by others therefore will depend upon a number of factors that are outside of the Company’s control, including timing and amount of capital expenditures, timing and amount of operating and maintenance expenditures, the operator’s expertise and financial resources, approval of other participants, selection of technology, and risk management practices.

 

 

Encana Corporation

36

 

Annual Information Form (prepared in US$)

 



 

Encana is exposed to counterparty risk.

 

Encana is exposed to the risks associated with counterparty performance including credit risk and performance risk. Encana may experience material financial losses in the event of customer payment default for commodity sales and financial derivative transactions. Encana’s liquidity may also be impacted if any lender under the Company’s existing credit facilities is unable to fund its commitment.  Performance risk can impact Encana’s operations by the non-delivery of contracted products or services by counterparties, which could impact project timelines or operational efficiency.

 

Fluctuations in exchange rates could affect expenses or result in realized and unrealized losses.

 

Worldwide prices for natural gas and oil are set in U.S. dollars. However, many of the Company’s expenses outside of the U.S. are denominated in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could impact the Company’s expenses and have an adverse effect on the Company’s financial performance and condition.

 

In addition, the Company has significant U.S. dollar denominated long-term debt. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could result in realized and unrealized losses on U.S. dollar denominated long-term debt.

 

The decision to pay dividends and the amount of such dividends is subject to the discretion of the Company’s Board of Directors based on numerous factors and may vary from time to time.

 

Although the Company currently intends to pay quarterly cash dividends to its shareholders, these cash dividends may be reduced or suspended. The amount of cash available to the Company to pay dividends, if any, can vary significantly from period to period for a number of reasons, including, among other things: Encana's operational and financial performance; fluctuations in the costs to produce natural gas, oil and NGLs; the amount of cash required or retained for debt service or repayment; amounts required to fund capital expenditures and working capital requirements; access to equity markets; foreign currency exchange rates and interest rates; and the risk factors set forth in this Annual Information Form.

 

The decision whether or not to pay dividends and the amount of any such dividends are subject to the discretion of the Company’s Board of Directors, which regularly evaluates the Company's proposed dividend payments and the solvency test requirements of the CBCA. In addition, the level of dividends per common share will be affected by the number of outstanding common shares and other securities that may be entitled to receive cash dividends or other payments. Dividends may be increased, reduced or suspended depending on the Company's operational success and the performance of its assets. The market value of the common shares may deteriorate if the Company is unable to meet dividend expectations in the future, and that deterioration may be material.

 

The Company is subject to claims, litigation, administrative proceedings and regulatory actions.

 

Encana may be subject to claims, litigation, administrative proceedings and regulatory actions. The outcome of these matters may be difficult to assess or quantify, and there cannot be any assurance that such matters will be resolved in the Company’s favour. If Encana is unable to resolve such matters favourably, the Company or its directors, officers or employees may become involved in legal proceedings that could result in an onerous or unfavourable decision, including fines, sanctions and monetary damages. The defence of such matters may also be costly and time consuming, and could divert the attention of management and key personnel from the Company’s operations. Encana may also be subject to adverse publicity associated with such matters, regardless of whether such allegations are valid or whether the Company is ultimately found liable. As a result, such matters could have a material adverse effect on the Company’s reputation, financial position, results of operations or liquidity.  See also “Legal Proceedings” in this Annual Information Form.

 

 

Encana Corporation

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Annual Information Form (prepared in US$)

 



 

The Company relies on certain key personnel and the ability to attract and retain personnel necessary for its business.

 

The Company relies on certain key personnel for the development of its business. The experience, knowledge and contributions of the Company’s existing management team and directors to the immediate and near-term operations and direction of the Company are likely to continue to be of central importance for the foreseeable future. As such, the loss of services from or retirement of such key personnel could have a material adverse effect on the Company. In addition, the competition for qualified personnel in the oil and gas industry is intense, and there can be no assurance that the Company will be able to continue to attract and retain such personnel necessary for its business.

 

The Company may be subject to future changes in laws.

 

Income tax laws, royalty regimes or other laws and regulations may in the future be changed or interpreted in a manner that adversely affects the Company or its securityholders. Tax authorities having jurisdiction over the Company or its shareholders could change their administrative practices, or may disagree with the manner in which the Company calculates its tax liabilities or structures its arrangements, to the detriment of the Company or its securityholders. Changes to existing laws and regulations or the adoption of new laws and regulations could also increase the Company’s cost of compliance and adversely affect the Company’s business, financial position, cash flows or results of operations.

 

Encana has certain indemnification obligations to Cenovus Energy Inc.

 

In relation to the Split Transaction, Encana and Cenovus have each agreed to indemnify the other for certain liabilities and obligations associated with, among other things, in the case of Encana’s indemnity, the business and assets retained by Encana, and in the case of Cenovus’s indemnity, the business and assets transferred to Cenovus.

 

Encana cannot determine whether it will be required to indemnify Cenovus for any substantial obligations. Encana also cannot be assured that, if Cenovus is required to indemnify Encana and its affiliates for any substantial obligations, Cenovus will be able to satisfy such obligations. Any indemnification claim against Encana pursuant to the provisions of the Split Transaction agreements could have a material adverse effect upon Encana.

 

The Company’s foreign operations will expose it to risks from abroad which could negatively affect its results of operations.

 

Some of Encana’s operations and related assets may be located, from time to time, in countries outside North America, some of which may be considered to be politically and economically unstable. Exploration or development activities in such countries may require protracted negotiations with host governments, national oil companies and third parties and are frequently subject to economic and political considerations, such as taxation, nationalization, expropriation, inflation, currency fluctuations, increased regulation and approval requirements, governmental regulation and the risk of actions by terrorist or insurgent groups, any of which could adversely affect the economics of exploration or development projects.

 

 

Encana Corporation

38

 

Annual Information Form (prepared in US$)

 



 

 

Transfer Agents and Registrars

 

 

The registrar and transfer agent for the Company’s common shares is CST Trust Company:

 

In Canada:

CST Trust Company

P.O. Box 700, Station B

Montreal, Quebec  H3B 3K3

In the United States:

Computershare

480 Washington Blvd.

Jersey City, New Jersey

United States of America 07310

 

In order to respond to Encana shareholder inquiries, the Company’s transfer agent has set-up a dedicated answer line. Shareholder inquiries should be directed to the following:

 

·                  Shareholders residing in Canada or the United States, please call 1-866-580-7145

·                  Shareholders residing outside of North America, please call 1-416-682-3863

 

Shareholders can also send requests via the transfer agent’s web site at: www.canstockta.com/en/InvestorServices/InvestorInquiryForm.

 

 

 

Interest of Experts

 

 

The Company’s independent auditors are PricewaterhouseCoopers LLP, Chartered Accountants, who have issued an independent auditor’s report dated February 20, 2014 in respect of the Company’s Consolidated Financial Statements as at December 31, 2013 and December 31, 2012, and for each of the years in the three year period ended December 31, 2013, and the Company’s effectiveness of internal control over financial reporting as at December 31, 2013. PricewaterhouseCoopers LLP has advised that they are independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Alberta and the rules of the SEC.

 

Information relating to reserves in this Annual Information Form was calculated by GLJ Petroleum Consultants Ltd., McDaniel & Associates Consultants Ltd., Netherland, Sewell & Associates, Inc. and DeGolyer and MacNaughton, each of which is an independent qualified reserves evaluator.

 

The principals of each of GLJ Petroleum Consultants Ltd., McDaniel & Associates Consultants Ltd., Netherland, Sewell & Associates, Inc. and DeGolyer and MacNaughton, in each case, as a group own beneficially, directly or indirectly, less than one percent of any class of Encana’s securities.

 

 

 

Additional Information

 

 

Additional information relating to Encana is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

 

Additional information, including directors’ and officers’ remuneration, principal holders of Encana’s securities, and options to purchase securities, is contained in the Information Circular for Encana’s most recent annual meeting of shareholders that involved the election of directors. Additional financial information is contained in Encana’s audited Consolidated Financial Statements and Management’s Discussion and Analysis for the year ended December 31, 2013.

 

 

Encana Corporation

39

 

Annual Information Form (prepared in US$)

 



 

 

Note Regarding Forward-Looking Statements

 

 

This Annual Information Form contains certain forward looking statements or information (collectively referred to in this note as “forward looking statements”) within the meaning of applicable securities legislation. Forward looking statements are typically identified by words such as “projected”, “anticipate”, “believe”, “expect”, “plan”, “intend”, “agreed to”, “is to” or similar words suggesting future outcomes or statements regarding an outlook. Forward looking statements in this Annual Information Form include, but are not limited to, statements with respect to: achieving the Company’s focus of developing its strong portfolio of diverse resource plays producing natural gas, oil and NGLs; the realignment of the Company’s business strategy and corporate organizational structure the success thereof; anticipated realignment of certain plays to complement the Company’s capital allocation strategy; the Company’s expectation that there will be no significant changes in reportable segments as a result of the new business strategy; anticipated future proceeds from various joint venture, partnership and other agreements entered into by the Company, including the successful implementation of and other expected benefits to be generated from those agreements; the Company’s plans to transfer its royalty business into a separate company and subsequently divest a portion of its interest in the new company through an IPO, including the expected future activities of the new company following the transaction, the anticipated benefits of the transaction to Encana and its shareholders, Encana's expected ownership level in the new company, that applicable approvals will be obtained and the timing and success of such offering; the Company’s commitment to growing long-term shareholder value through a disciplined focus on generating profitable growth; the Company’s plan to maximize profitability through disciplined capital allocation and improved capital and operating efficiency; maintaining a balanced and flexible portfolio; anticipated cost reductions and the ability to preserve balance sheet strength; anticipated cash flow; anticipated access to capital markets and ability to meet financial obligations and finance growth; the success of implementing the resource play hub strategy across certain plays; expected accelerated development in certain of the high return assets; optimizing the Company’s base production; anticipated drilling and number of drilling rigs and the success thereof and anticipated production from wells and the product composition of such production; anticipated oil, natural gas and NGLs prices; expectation for risk management contracts to mitigate market risk associated with future cash flows; estimated reserves and resources; availability of large inventory of internal growth opportunities; anticipated dividends; potential future discounts to market price in connection with the Company’s DRIP; the level of expenditures for compliance with environmental legislation and regulations, including estimates of potential costs of carbon, operating costs, site restoration costs including abandonment and reclamation costs; maintaining satisfactory credit ratings; pending and potential litigation and having adequate provision for the same; and expectation to expand the natural gas markets in North America.

 

Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the Company’s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include, among other things: volatility of, and assumptions regarding natural gas and liquids prices, including substantial or extended decline of the same and their adverse effect on the Company’s operations and financial condition and the value and amount of its reserves; assumptions based upon the Company’s current guidance; fluctuations in currency and interest rates; risk that the Company may not conclude divestitures of certain assets or other transactions or receive amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which Encana may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which Encana may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; product supply and demand; market competition; risks inherent in the Company’s and its subsidiaries’ marketing operations, including credit risks; imprecision of reserves estimates and estimates of recoverable quantities of natural gas and liquids from resource plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources, including future net revenue estimates; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities; unexpected cost increases or technical difficulties in constructing or modifying processing facilities; risks associated with technology; the Company’s ability to acquire or find additional reserves; hedging activities resulting in realized and unrealized losses; business interruption and casualty losses; risk of the Company not operating all of its properties and assets; counterparty risk; downgrade in credit rating and its adverse effects; liability for

 

 

Encana Corporation

40

 

Annual Information Form (prepared in US$)

 



 

indemnification obligations to third parties; variability of dividends to be paid; its ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; the Company’s ability to secure adequate product transportation; changes in royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations or the interpretations of such laws or regulations; political and economic conditions in the countries in which the Company operates; terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions made against the Company; risk arising from price basis differential; risk arising from inability to enter into attractive hedges to protect the Company’s capital program; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Encana. Without limiting the generality of the foregoing, there can be no assurance that Encana will ultimately conduct an IPO or, if a new company is created, the final particulars thereof, including without limitation, the number, value or location of the fee simple mineral title lands and associated royalty interests that would be proposed to be transferred to a new company, the size of the retained interest that Encana would hold initially or in the future in the new company, and other arrangements that would be proposed or exist as between Encana and the new company.  Encana’s determination to create a new company is subject to a number of risks and uncertainties, including without limitation, those relating to approval by Encana’s Board of Directors, due diligence, favourable market conditions and stock exchange, regulatory and third party approvals. Although Encana believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive. In addition, assumptions relating to such forward-looking statements generally include Encana’s current expectations and projections made in light of, and generally consistent with, its historical experience and its perception of historical trends, including the conversion of resources into reserves and production as well as expectations regarding rates of advancement and innovation, generally consistent with and informed by its past experience, all of which are subject to the risk factors identified elsewhere in this Annual Information Form.

 

Assumptions with respect to forward-looking information regarding expanding Encana’s oil and NGL production and extraction volumes are based on existing expansion of natural gas processing facilities in areas where Encana operates and the continued expansion and development of oil and NGL production from existing properties within its asset portfolio.

 

Furthermore, the forward looking statements contained in this Annual Information Form are made as of the date hereof and, except as required by law, Encana undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward looking statements contained in this Annual Information Form are expressly qualified by this cautionary statement.

 

 

 

Note Regarding Reserves Data and Other Oil and Gas Information

 

 

National Instrument 51-101 of the Canadian Securities Administrators imposes oil and gas disclosure standards for Canadian public companies engaged in oil and gas activities. The Canadian protocol disclosure is contained in Appendix A and under “Narrative Description of the Business”. Encana obtained an exemption dated January 4, 2011 from certain requirements of NI 51-101 to permit it to provide certain disclosure prepared in accordance with U.S. disclosure requirements, in addition to the Canadian protocol disclosure. That disclosure is primarily set forth in Appendix D.

 

See “Reserves and Other Oil and Gas Information” in this Annual Information Form for a description of the primary differences between the disclosure requirements under the Canadian standards and the disclosure requirements under the U.S. standards.

 

All production information contained in the narrative portions of this Annual Information Form is on a net basis (after royalties), unless otherwise indicated.  Certain terms in this Annual Information Form relating to oil and gas reserves and operating activities have the meaning assigned to them in NI 51-101 or are otherwise defined in this Annual Information Form.

 

 

Encana Corporation

41

 

Annual Information Form (prepared in US$)

 



 

 

Appendix  A - Canadian Protocol Disclosure of Reserves Data and Other Oil and Gas Information

 

 

In this Appendix, Encana provides disclosure of its reserves and oil and gas information in accordance with the requirements of NI 51-101. See “Note Regarding Reserves Data and Other Oil and Gas Information”. The reserves and other oil and gas information set forth below has an effective date of December 31, 2013 and was prepared as of February 11, 2014.

 

Since inception, Encana has retained IQREs to evaluate and prepare reports on 100 percent of Encana’s natural gas, oil and NGL reserves annually. For further information regarding the reserves process, see “Reserves and Other Oil and Gas Information” in this Annual Information Form.

 

The reserves data summarizes the estimated natural gas, oil and NGL reserves of Encana and the net present values of future net revenues for these reserves using forecast prices and costs, as evaluated by Encana’s IQREs. The evaluations were prepared in accordance with procedures and standards contained in the Canadian Oil and Gas Evaluation (“COGE”) Handbook. The reserves definitions used are those contained in the COGE Handbook and NI 51-101.

 

The results of the evaluations are summarized in the tables that follow in this Appendix. All evaluations of future net revenue are after the deduction of future income tax expenses (unless otherwise noted), royalties, development costs, production costs and well abandonment costs, but before the consideration of some indirect costs and certain abandonment and reclamation costs. The estimated future net revenue does not necessarily represent the fair market value of Encana’s reserves. There is no assurance that the forecast price and cost assumptions used in preparing the evaluations will be attained and variances could be material. The reserves estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. The actual reserves on Encana’s properties may be greater or less than those calculated.

 

For further information regarding the reserves process see “Reserves and Other Oil and Gas Information” in this Annual Information Form.

 

The following product types are referred to in the tables in this Appendix:

 

·               Coalbed Methane, which includes coalbed methane commingled with shallow gas sands, related to the Clearwater resource play in the Canadian Division.

 

·                Shale Gas, which includes Horn River and Duvernay shale gas in the Canadian Division and Haynesville shale gas in the USA Division.

 

·                Other, which includes natural gas other than coalbed methane and shale gas. Reserves and production include the following resource plays: Cutbank Ridge, Bighorn, Peace River Arch and Greater Sierra (excluding Horn River shale) in the Canadian Division; and Piceance, Jonah and Texas in the USA Division.

 

·                  Oil and NGLs, which includes NGLs plus light and medium oil, of which light and medium oil is not material.

 

 

 

A-1

 

Encana Corporation

Canadian Protocol Reserves Disclosure

Annual Information Form (prepared in US$)

 



 

Reserves Data (Canadian Protocol)

 

Summary of Oil and Gas Reserves (1)

(Forecast Prices and Costs; Before and After Royalties)

 

As at December 31, 2013

 

Canadian Division

 

 

 

 

Natural Gas (Bcf)

 

 

Oil & NGLs (MMbbls)

 

 

 

Coalbed Methane

 

Shale Gas

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

 

646

 

657

 

 

299

 

277

 

 

2,150

 

1,905

 

 

3,095

 

2,839

 

 

65.8

 

59.6

 

Developed non-producing

 

 

73

 

64

 

 

1

 

1

 

 

85

 

75

 

 

159

 

140

 

 

3.4

 

2.8

 

Undeveloped

 

 

122

 

83

 

 

87

 

80

 

 

1,568

 

1,408

 

 

1,777

 

1,571

 

 

71.9

 

59.8

 

Total Proved

 

 

841

 

804

 

 

387

 

358

 

 

3,803

 

3,388

 

 

5,031

 

4,550

 

 

141.1

 

122.2

 

Probable

 

 

156

 

151

 

 

203

 

176

 

 

1,997

 

1,761

 

 

2,356

 

2,088

 

 

92.4

 

73.5

 

Total Proved Plus Probable

 

 

997

 

955

 

 

590

 

534

 

 

5,800

 

5,149

 

 

7,387

 

6,638

 

 

233.5

 

195.7

 

 

 

USA Division

 

 

 

 

Natural Gas (Bcf)

 

 

Oil & NGLs (MMbbls)

 

 

 

Coalbed Methane

 

Shale Gas

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

 

-

 

-

 

 

533

 

425

 

 

2,497

 

2,096

 

 

3,030

 

2,521

 

 

54.4

 

45.0

 

Developed non-producing

 

 

-

 

-

 

 

1

 

1

 

 

243

 

195

 

 

244

 

196

 

 

13.5

 

11.3

 

Undeveloped

 

 

-

 

-

 

 

559

 

444

 

 

1,054

 

865

 

 

1,613

 

1,309

 

 

68.3

 

56.4

 

Total Proved

 

 

-

 

-

 

 

1,093

 

870

 

 

3,794

 

3,156

 

 

4,887

 

4,026

 

 

136.2

 

112.7

 

Probable

 

 

-

 

-

 

 

998

 

800

 

 

1,283

 

1,087

 

 

2,281

 

1,887

 

 

68.1

 

57.9

 

Total Proved Plus Probable

 

 

-

 

-

 

 

2,091

 

1,670

 

 

5,077

 

4,243

 

 

7,168

 

5,913

 

 

204.3

 

170.6

 

 

 

Total Encana

 

 

 

 

Natural Gas (Bcf)

 

 

Oil & NGLs (MMbbls)

 

 

 

Coalbed Methane

 

Shale Gas

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

 

Gross

 

Net

 

Proved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

 

646

 

657

 

 

832

 

702

 

 

4,647

 

4,001

 

 

6,125

 

5,360

 

 

120.2

 

104.6

 

Developed non-producing

 

 

73

 

64

 

 

2

 

2

 

 

328

 

270

 

 

403

 

336

 

 

16.9

 

14.1

 

Undeveloped

 

 

122

 

83

 

 

646

 

524

 

 

2,622

 

2,273

 

 

3,390

 

2,880

 

 

140.2

 

116.2

 

Total Proved

 

 

841

 

804

 

 

1,480

 

1,228

 

 

7,597

 

6,544

 

 

9,918

 

8,576

 

 

277.3

 

234.9

 

Probable

 

 

156

 

151

 

 

1,201

 

976

 

 

3,280

 

2,848

 

 

4,637

 

3,975

 

 

160.5

 

131.4

 

Total Proved Plus Probable

 

 

997

 

955

 

 

2,681

 

2,204

 

 

10,877

 

9,392

 

 

14,555

 

12,551

 

 

437.8

 

366.3

 

 

Notes:

(1)             Definitions

a)                “Gross” reserves are Encana’s working interest share before the deduction of estimated royalty obligations and excluding any royalty interests.

b)                “Net” reserves are Encana’s working interest share after deduction of estimated royalty obligations and including Encana’s royalty interests.

c)                “Reserves” are the estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, from a given date forward, based on: analysis of drilling, geological, geophysical and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable.

d)                “Proved” reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

e)                “Probable” reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater than or less than the sum of the estimated proved plus probable reserves.

f)                  “Developed producing” are those reserves that are expected to be recovered from completion intervals open at the time of the estimate.  These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.

g)                “Developed non-producing” reserves are those reserves that either have not been on production, or have previously been on production, but are shut-in, and the date of resumption of production is unknown.

h)                “Undeveloped” reserves are those reserves that are expected to be recovered from known accumulations where a significant expenditure (i.e., when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved, probable) to which they are assigned.

 

 

 

A-2

 

Encana Corporation

Canadian Protocol Reserves Disclosure

Annual Information Form (prepared in US$)

 



 

Summary of Net Present Value of Future Net Revenue

(Forecast Prices and Costs; Before Tax)

 

As at December 31, 2013

 

Canadian Division

 

 

 

Future Net Revenue Before Future Income Tax and Discounted at

 

($ millions)

 

0%  

 

5%  

 

10%  

 

15%  

 

20%  

 

Proved

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

9,600

 

7,479

 

6,205

 

5,363

 

4,761

 

Developed non-producing

 

435

 

313

 

244

 

200

 

170

 

Undeveloped

 

5,571

 

3,433

 

2,272

 

1,572

 

1,119

 

Total Proved

 

15,606

 

11,225

 

8,721

 

7,135

 

6,050

 

Probable

 

9,985

 

5,543

 

3,586

 

2,550

 

1,929

 

Total Proved Plus Probable

 

25,591

 

16,768

 

12,307

 

9,685

 

7,979

 

 

 

USA Division

 

 

 

Future Net Revenue Before Future Income Tax and Discounted at

 

($ millions)

 

0%  

 

5%  

 

10%  

 

15%  

 

20%  

 

Proved

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

8,821

 

6,678

 

5,376

 

4,521

 

3,924

 

Developed non-producing

 

1,116

 

734

 

537

 

422

 

349

 

Undeveloped

 

5,355

 

3,271

 

2,154

 

1,491

 

1,067

 

Total Proved

 

15,292

 

10,683

 

8,067

 

6,434

 

5,340

 

Probable

 

7,172

 

3,852

 

2,265

 

1,410

 

911

 

Total Proved Plus Probable

 

22,464

 

14,535

 

10,332

 

7,844

 

6,251

 

 

 

Total Encana

 

 

 

Future Net Revenue Before Future Income Tax and Discounted at

 

($ millions)

 

0%  

 

5%  

 

10%  

 

15%  

 

20%  

 

Proved

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

18,421

 

14,157

 

11,581

 

9,884

 

8,685

 

Developed non-producing

 

1,551

 

1,047

 

781

 

622

 

519

 

Undeveloped

 

10,926

 

6,704

 

4,426

 

3,063

 

2,186

 

Total Proved

 

30,898

 

21,908

 

16,788

 

13,569

 

11,390

 

Probable

 

17,157

 

9,395

 

5,851

 

3,960

 

2,840

 

Total Proved Plus Probable

 

48,055

 

31,303

 

22,639

 

17,529

 

14,230

 

 

 

 

A-3

 

Encana Corporation

Canadian Protocol Reserves Disclosure

Annual Information Form (prepared in US$)

 



 

Summary of Net Present Value of Future Net Revenue

(Forecast Prices and Costs; After Tax)

 

As at December 31, 2013

 

Canadian Division

 

 

 

Future Net Revenue After Future Income Tax and Discounted at

 

($ millions)

 

0%  

 

5%  

 

10%  

 

15%  

 

20%  

 

Proved

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

8,333

 

6,605

 

5,549

 

4,841

 

4,330

 

Developed non-producing

 

333

 

238

 

185

 

151

 

128

 

Undeveloped

 

4,242

 

2,554

 

1,634

 

1,081

 

724

 

Total Proved

 

12,908

 

9,397

 

7,368

 

6,073

 

5,182

 

Probable

 

7,480

 

4,106

 

2,620

 

1,836

 

1,370

 

Total Proved Plus Probable

 

20,388

 

13,503

 

9,988

 

7,909

 

6,552

 

 

 

USA Division

 

 

 

Future Net Revenue After Future Income Tax and Discounted at

 

($ millions)

 

0%  

 

5%  

 

10%  

 

15%  

 

20%  

 

Proved

 

 

 

 

 

 

 

 

 

 

 

Developed producing

 

7,177

 

5,554

 

4,536

 

3,850

 

3,362

 

Developed non-producing