10-K 1 eca-10k_20181231.htm 10-K eca-10k_20181231.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

or

 

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-15226

 

 

ENCANA CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Canada

 

98-0355077

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

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

(Address of principal executive offices)

Registrant’s telephone number, including area code (403) 645-2000

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each

class

  

Name of each exchange

on which registered

Common Shares

  

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X] No [  ]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

 

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 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [   ]

 

 

 


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                      [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [X]        Accelerated filer [   ]

Non-accelerated filer [   ]          Smaller reporting company [   ]

       Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.            [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes [   ] No [X] 

 

 

 

 

 

 

Aggregate market value of the voting and non-voting common equity held by non-affiliates of registrant as of June 29, 2018

  

$

  12,480,296,717

  

Number of registrant’s common shares outstanding as of February 25, 2019

  

 

  1,495,871,408

  

 

Documents Incorporated by Reference

Portions of registrant’s definitive proxy statement (“Proxy Statement”) for the registrant’s 2019 annual meeting of shareholders to be held April 30, 2019 (to be filed with the Securities and Exchange Commission prior to April 30, 2019) are incorporated by reference in Part III of this Annual Report on Form 10-K.

 

 


 

ENCANA CORPORATION

FORM 10-K

TABLE OF CONTENTS

 

 

 

 

 

 

PART I

  

 

 

 

 

 

Items 1 and 2. Business and Properties

  

 

8

  

Item 1A. Risk Factors

  

 

27

  

Item 1B. Unresolved Staff Comments

  

 

38

  

Item 3.    Legal Proceedings

  

 

38

  

Item 4.    Mine Safety Disclosures

  

 

38

  

 

 

PART II

  

 

 

 

 

 

Item 5.    Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

  

 

39

  

Item 6.    Selected Financial Data

  

 

42

  

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

 

43

  

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

  

 

75

  

Item 8.    Financial Statements and Supplementary Data

  

 

77

  

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  

 

137

  

Item 9A. Controls and Procedures

  

 

137

  

Item 9B. Other Information

  

 

137

  

 

 

PART III

  

 

 

 

 

 

Item 10.  Directors, Executive Officers and Corporate Governance

  

 

138

  

Item 11.  Executive Compensation

  

 

138

  

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

  

 

138

  

Item 13.  Certain Relationships and Related Transactions, and Director Independence

  

 

138

  

Item 14.  Principal Accounting Fees and Services

  

 

138

  

 

 

PART IV

  

 

 

 

 

 

Item 15.  Exhibits and Financial Statement Schedules

  

 

139

  

Signatures

  

 

144

  

 


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DEFINITIONS

 

Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Encana” and the “Company” refer to Encana Corporation and its consolidated subsidiaries. In addition, the following are other abbreviations and definitions of certain terms used within this Annual Report on Form 10-K:

“AECO” means Alberta Energy Company and is the Canadian benchmark price for natural gas.

“ASC” means Accounting Standards Codification.

“ASU” means Accounting Standards Update.

“bbl” or “bbls” means barrel or barrels.

“bbls/d” means barrels per day.

“Bcf” means billion cubic feet.

“Bcf/d” means billion cubic feet per day.

“BOE” means barrels of oil equivalent.

“BOE/d” means barrels of oil equivalent per day.

“Btu” means British thermal units, a measure of heating value.

“DD&A” means depreciation, depletion and amortization expenses.

“FASB” means Financial Accounting Standards Board.

“LIBOR” means London Interbank Offered Rate.

“Mbbls” means thousand barrels.

“Mbbls/d” means thousand barrels per day.

“MBOE” means thousand barrels of oil equivalent.

“MBOE/d” means thousand barrels of oil equivalent per day.

“Mcf” means thousand cubic feet.

“Mcf/d” means thousand cubic feet per day.

“MD&A” means Management’s Discussion and Analysis of Financial Condition and Results of Operations.

“MMbbls” means million barrels.

“MMbbls/d” means million barrels per day.

“MMBOE” means million barrels of oil equivalent.

“MMBOE/d” means million barrels of oil equivalent per day.

“MMBtu” means million Btu.

“MMcf” means million cubic feet.

“MMcf/d” means million cubic feet per day.

“NCIB” means normal course issuer bid.

“NGL” or “NGLs” means natural gas liquids.

“NYMEX” means New York Mercantile Exchange.

“NYSE” means New York Stock Exchange.

“OPEC” means Organization of the Petroleum Exporting Countries.

“SEC” means United States Securities and Exchange Commission.

“Standardized measure” means the present value of after-tax future net revenues discounted at 10% per annum.

“S&P 500” means Standard and Poor’s 500 index.

S&P/TSX Composite Index” means Standard and Poor’s index for Canadian equity markets.

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“TSX” means Toronto Stock Exchange.

“U.S.” or “United States” or “USA” means United States of America.

“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.

“WTI” means West Texas Intermediate.

 

CONVERSIONS

 

In this Annual Report on Form 10-K, a conversion of natural gas volumes to BOE is on the basis of six Mcf to one bbl.  BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Given that the value ratio based on the current price of oil 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, particularly if used in isolation.

 

CONVENTIONS

 

Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars. All amounts are provided on a before tax basis, unless otherwise stated. In addition, all information provided herein is presented on an after royalties basis.

 

The term “liquids” is used to represent oil, NGLs and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. The term “play” is used to describe an area in which hydrocarbon accumulations or prospects of a given type occur. Encana’s focus of development is on hydrocarbon accumulations known to exist over a large areal expanse and/or thick vertical section and are developed using hydraulic fracturing. This type of development typically has a lower geological and/or commercial development risk and lower average decline rate, when compared to conventional development.

 

The term “core asset” refers to plays that are the focus of the Company’s current capital investment and development plan. The Company continually reviews funding for development of its plays based on strategic fit, profitability and portfolio diversity and, as such, the composition of plays identified as a core asset may change over time.

 

References to information contained on the Company’s website at www.encana.com are not incorporated by reference into, and does not constitute a part of, this Annual Report on Form 10-K.

 

FORWARD-LOOKING STATEMENTS AND RISK

 

This Annual Report on Form 10-K and documents incorporated herein by reference contain certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include: composition of the Company’s core assets, including the allocation of capital and focus of development plans; growth in long-term shareholder value; vision of being a leading North American resource play company; the anticipated synergies from the Newfield acquisition; the expectation that the Newfield acquisition will be accretive to all metrics in the Company’s five-year plan; the Company’s ability to realize the anticipated benefits of the Newfield acquisition; statements with respect to the Company’s strategic objectives including capital allocation strategy, focus of investment, focus of returning capital to shareholders through sustainable dividends and share buybacks, growth of high margin liquids volumes, operating and capital efficiencies and ability to preserve balance sheet strength; ability to lower costs and improve efficiencies to achieve competitive advantage, including benefits of integrated supply chain model and self-sourcing; ability to repeat and deploy successful practices across the Company’s multi-basin portfolio; balancing commodity portfolio; anticipated commodity prices; success of and benefits from technology and innovation, including cube development approach, precision well targeting and advanced completion designs; reduced dependence on fresh water requirements and anticipated water infrastructure; ability to accelerate activity levels; ability to optimize well and completion designs, including changes to lateral lengths drilled, stage, well spacing and stacking optimization; future well inventory; anticipated drilling, number of drilling rigs and the success thereof; anticipated drilling costs and cycle times; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; expected timing for construction of facilities

5

 


 

and costs thereof; expansion of future midstream services; estimates of reserves and resources; expected production and product types; ability to replicate successful test wells to future production; statements regarding anticipated cash flow, non-GAAP cash flow margin and leverage ratios; anticipated cash and cash equivalents; anticipated hedging and outcomes of risk management program, including ability to leverage marketing fundamentals expertise, exposure to certain commodity prices and foreign exchange, amount of hedged production, market access and physical sales locations; impact of changes in laws and regulations, including recent U.S. tax reform and potential changes to free trade agreements; compliance with environmental legislation and claims related to the purported causes and impact of climate change, and the costs therefrom; adequacy of provisions for abandonment and site reclamation costs; financial flexibility and discipline; access to cash and cash equivalents and other methods of funding; ability to meet financial obligations, manage debt and financial ratios, finance growth and compliance with financial covenants; impact to the Company as a result of changes to its credit rating; access to the Company's credit facilities; planned annualized dividend and the declaration and payment of future dividends, if any; intention to guarantee Newfield’s outstanding notes; managing capital structure including adjustments to capital spending or dividends, issuing debt or equity, purchasing shares through a NCIB or repaying existing debt; expectations with respect to the Company’s anticipated share buyback, including amount and number of shares to be acquired, anticipated timeframe, method and location of purchases, and source of funding thereof; adequacy of the Company's provision for taxes and legal claims; projections and expectation of meeting the targets contained in the Company's corporate guidance and five-year plan; ability to manage cost inflation and expected cost structures, including expected operating, transportation and processing and administrative expenses; competitiveness and pace of growth of the Company’s assets within North America and against its peers; outlook of oil and gas industry generally and impact of geopolitical environment; returns from the Company’s core assets; anticipated capital spending plans and source of funding thereof; anticipated staffing levels; expected future interest expense; the Company’s commitments and obligations and ability to satisfy the same; statements with respect to future ceiling test impairments; and the possible impact and timing of accounting pronouncements, rule changes and standards.

 

Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include: future commodity prices and differentials; foreign exchange rates; ability to access credit facilities and shelf prospectuses; assumptions contained in the Company’s corporate guidance, five-year plan and as specified herein; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; effectiveness of the Company's drive to productivity and efficiencies; results from innovations; expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements; access to transportation and processing facilities where Encana operates; assumed tax, royalty and regulatory regimes; and expectations and projections made in light of, and generally consistent with, Encana's historical experience and its perception of historical trends, including with respect to the pace of technological development, benefits achieved and general industry expectations.

 

Risks and uncertainties that may affect these outcomes include: ability to generate sufficient cash flow to meet obligations; commodity price volatility; ability to secure adequate transportation and potential pipeline curtailments; variability and discretion of Encana's board of directors (the “Board of Directors”) to declare and pay dividends, if any; timing and costs of well, facilities and pipeline construction; business interruption, property and casualty losses or unexpected technical difficulties, including impact of weather; counterparty and credit risk; ability to realize the anticipated benefits of acquisitions, including the Newfield acquisition; uncertainties relating to the Company’s ability to successfully integrate Newfield’s business, technologies, personnel and business partners; actions of OPEC, its members and other state-controlled oil companies relating to oil price and production controls; sustained declines in commodity prices resulting in impairment of assets; impact of a downgrade in credit rating and its impact on access to sources of liquidity; fluctuations in currency and interest rates; risks associated with inflation rates; risks inherent in the Company's corporate guidance; failure to achieve cost and efficiency initiatives; risks inherent in marketing operations; risks associated with technology, including electronic, cyber and physical security breaches; changes in or interpretation of royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations, including potential environmental liabilities that are not covered by an effective indemnity or insurance; risks associated with existing and potential lawsuits and regulatory actions made against the Company, including in relation to the Newfield acquisition; impact of disputes arising with its partners, including suspension of certain obligations and inability to dispose of assets or interests in certain arrangements; the Company's ability to acquire or find additional reserves; imprecision of reserves estimates and estimates of recoverable quantities, including future net revenue estimates; land, legal, regulatory and ownership complexities inherent in Canada, the

6

 


 

U.S. and China; risks associated with past and future acquisitions or divestitures of certain assets or other transactions or receipt of 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; and other risks described in Item 1A. Risk Factors of this Annual Report on Form 10-K and risks and uncertainties impacting Encana's business as described from time to time in the Company's other periodic filings with the SEC incorporated by reference in this Annual Report on Form 10-K.

 

Although the Company believes 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 assumptions, risks and uncertainties referenced above and in the documents incorporated by reference herein are not exhaustive. Forward-looking statements are made as of the date of this document (or, in the case of a document incorporated by reference, the date of such document incorporated by reference) and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained or incorporated by reference in this Annual Report on Form 10-K are expressly qualified by these cautionary statements.

 

The reader should read carefully the risk factors described in Item 1A. Risk Factors of this Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.

 

EXPLANATORY NOTE

 

On February 13, 2019, Encana completed its previously announced strategic business combination with Newfield Exploration Company (“Newfield”) pursuant to which an indirect, wholly-owned subsidiary of Encana merged with and into Newfield, with Newfield surviving the merger as an indirect, wholly-owned subsidiary of Encana (the “Newfield acquisition”). Although this Annual Report on Form 10-K is filed after completion of the acquisition, unless otherwise specifically noted herein, information set forth herein only relates to the period as at and for the fiscal year ended December 31, 2018 and therefore does not include the information of Newfield for such periods. Accordingly, unless otherwise specifically noted herein, references herein to “Encana,” the “Company,” “we,” “us,” or “our” refer only to Encana and its subsidiaries prior to the Newfield acquisition and do not include Newfield and its subsidiaries.

 

 

 

7

 


 

PART I

Items 1 and 2. Business and Properties

 

GENERAL

 

Encana is a leading North American energy producer that is focused on generating full-cycle returns, free cash flow and return of capital to shareholders by developing its multi-basin portfolio of oil, NGL and natural gas producing plays. Encana's operations also include the marketing of oil, NGLs and natural gas. As at December 31, 2018, all of Encana’s reserves and production were located in North America.

 

Encana’s registered and principal office is located at 4400, 500 Centre Street S.E., Calgary, Alberta T2P 2S5, Canada. Encana’s common shares are listed and posted for trading on the TSX and on the NYSE under the symbol “ECA”. Encana is incorporated under the Canada Business Corporations Act (the “CBCA”) and was formed in 2002 through the business combination of two predecessor companies.

 

Available Information

 

Encana is subject to the informational requirements of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance with the Exchange Act, it also files reports with and furnishes other information to the SEC. The public may obtain any document Encana files with or furnishes to the SEC from the SEC's Electronic Document Gathering, Analysis, and Retrieval system (“EDGAR”), which can be accessed at www.sec.gov, or via the System for Electronic Document Analysis and Retrieval (“SEDAR”), which can be accessed at www.sedar.com, as well as from commercial document retrieval services.

 

Copies of this Annual Report on Form 10-K and the documents incorporated herein by reference may be obtained on request without charge from Encana’s Corporate Secretary, 4400, 500 Centre Street S.E., P.O. Box 2850, Calgary, Alberta T2P 2S5, Canada, telephone: (403) 645-2000. Encana also provides access without charge to all of the Company’s SEC filings, including copies of this Annual Report on Form 10-K and the documents incorporated herein by reference, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after filing or furnishing, on Encana’s website located at www.encana.com.

 

Enforceability of Civil Liabilities

 

Encana is a corporation incorporated under and governed by the CBCA. Some of Encana’s officers and directors, and some of the experts named in this Annual Report on Form 10-K, are Canadian residents, and many of Encana’s assets or the assets of its officers and directors and the experts are located outside the United States. Encana has appointed an agent for service of process in the United States, but it may be difficult for holders of common shares who reside in the United States to effect service within the United States upon those directors, officers and experts who are not residents of the United States. It may also be difficult for holders of common shares who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our officers and directors and experts under the United States federal securities laws.

 

STRATEGY

 

Encana’s vision is to be a leading North American resource play company that is committed to growing long-term shareholder value through a disciplined focus on generating profitable growth.  Objectives that support the execution of the Company’s strategy include:

 

 

Balance sheet strength

 

Disciplined capital allocation

 

Maximizing profitability through operational and capital efficiencies

 

Focused on returning capital to shareholders through sustainable dividends and share buybacks

 

Focused investment in high margin liquids plays to drive cash flow, free cash flow and returns from a multi-basin portfolio

8

 


 

The Company has a history of identifying and entering into strategic plays that can be developed with industry leading horizontal drilling and completions methods and leveraging technology to profitably develop oil and natural gas resources within the plays. Encana continually strives to lower costs and improve efficiencies to achieve competitive advantage through technology and innovation. Capital and operating efficiencies are achieved by repeating and deploying successful practices across the Company’s multi-basin portfolio.

 

Encana’s capital investment strategy is focused on quality growth from a limited number of core, high margin and scalable projects, while balancing the commodity portfolio and optimizing performance from the remainder of the Company’s resource base. In addition, Encana leverages its market fundamentals expertise by actively monitoring and managing market volatility and diversifying price and market access risks to enhance the Company’s margins.

 

During 2018, the oil and natural gas industry continued to experience commodity price volatility, with increasing concerns over global economic growth and continued robust production growth in North America. Encana has continued to execute on its strategy by directing capital investment to core assets with high margin liquids and future growth potential and divesting non-strategic assets.  With higher levels of industry activity, Encana focused on maintaining cost controls by leveraging its integrated supply chain model through self-sourcing of key drilling and completions consumables to obtain scale advantages from negotiating better contract pricing and securing supply services. Encana also focused on enhancing capital and operating efficiencies by leveraging technology and innovation to maximize efficiencies and optimize resource recovery. In 2019, Encana is focused on generating free cash flow with modest liquids growth from the Company’s portfolio of top tier assets and delivering return of capital to shareholders. For additional discussion on the Company’s results, see Item 7 of this Annual Report on Form 10-K.

 

REPORTING SEGMENTS

 

Encana’s predominant operations are focused on the finding and development of oil, NGLs and natural gas reserves. The Company is also focused on creating and capturing additional value through its market optimization segment. The Company conducts a substantial portion of its business through subsidiaries. Encana’s operating and reportable segments are: (i) Canadian Operations; (ii) USA Operations; and (iii) Market Optimization.

 

 

Canadian Operations includes the exploration for, development of, and production of oil, NGLs, natural gas and other related activities within Canada. At December 31, 2018, core assets that are part of Encana’s strategic development focus include: Montney in northeast British Columbia and northwest Alberta and Duvernay in west central Alberta. Other Upstream Operations comprise assets that are not part of Encana’s current strategic focus and primarily include: Wheatland in southern Alberta, Horn River in northeast British Columbia and Deep Panuke located offshore Nova Scotia. Other Upstream Operations also includes assets where the Company may pursue growth opportunities.

 

 

USA Operations includes the exploration for, development of, and production of oil, NGLs, natural gas and other related activities within the U.S. At December 31, 2018, core assets that are part of Encana’s strategic development focus include: Eagle Ford in south Texas and Permian in west Texas. Other Upstream Operations comprise assets that are not part of Encana’s current strategic focus.

 

 

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

 

For additional information regarding Encana’s reporting segments, see Note 2 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

9

 


 

OIL AND GAS PROPERTIES AND ACTIVITIES

The following map reflects the location of Encana’s North American landholdings and assets as at December 31, 2018 and does not include oil and gas properties that were acquired by Encana pursuant to the Newfield acquisition.


10

 


 

Canadian Operations

 

Overview: In 2018, the Canadian Operations had total capital investment of approximately $632 million and drilled approximately 139 net wells predominately in Montney and Duvernay. Production averaged approximately 49.6 Mbbls/d of oil and NGLs and approximately 1,007 MMcf/d of natural gas. At December 31, 2018, the Canadian Operations had an established land position in Canada of approximately 1.8 million net acres including approximately 1.2 million net undeveloped acres. In addition, the Canadian Operations accounted for 40 percent of production sales during 2018 and 53 percent of total proved reserves as at December 31, 2018.

 

The following tables summarize the Canadian Operations 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, 2018)

Gross

Net

Gross

Net

Gross

Net

Montney

572

369

672

424

1,244

793

64%

Duvernay

108

45

411

219

519

264

51%

Other Upstream Operations (1)

215

152

801

555

1,016

707

70%

Total Canadian Operations

895

566

1,884

1,198

2,779

1,764

63%

(1) Other Upstream Operations primarily includes Wheatland, Horn River and Deep Panuke, as well as assets where the Company may pursue growth opportunities.

 

Producing Wells

Oil

Natural Gas

Total

(number of wells at December 31, 2018) (1)

Gross

Net

Gross

Net

Gross

Net

Montney

 

6

5

1,501

1,237

1,507

1,242

Duvernay

12

3

168

84

180

87

Other Upstream Operations (2)

10

6

570

470

580

476

Total Canadian Operations

28

14

2,239

1,791

2,267

1,805

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

(2) Other Upstream Operations primarily includes Wheatland and Horn River.

 

 

 

NGLs

 

Production

Oil

(Mbbls/d)

Plant Condensate

(Mbbls/d)

Other

(Mbbls/d)

Total

(Mbbls/d)

Natural Gas

(MMcf/d)

(average daily)

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

Montney

0.3

0.2

28.6

14.6

12.8

4.5

41.4

19.1

894

644

Duvernay

0.1

0.2

6.6

8.3

1.2

1.3

7.8

9.6

59

64

Other Upstream Operations (1)

-

-

-

0.2

-

0.2

-

0.4

54

130

Total Canadian Operations

0.4

0.4

35.2

23.1

14.0

6.0

49.2

29.1

1,007

838

(1) Other Upstream Operations primarily includes Wheatland, Horn River and Deep Panuke.

 

 

Montney

 

Montney is primarily a condensate rich natural gas play located in northeast British Columbia and northwest Alberta. While Encana is currently targeting the development of condensate rich locations in the Montney formation, the acreage comprising the Montney play also includes landholdings with incremental producing formations such as Cadomin and Doig. In 2018, total production from the play averaged approximately 41.7 Mbbls/d of oil and NGLs and approximately 894 MMcf/d of natural gas. As at December 31, 2018, Encana controlled approximately 793,000 net acres in the play.

 

During 2018, Encana continued to focus development in the Montney formation, which is characterized by up to six stacked horizons spanning over 1,000 feet of stratigraphy and is being developed exclusively with horizontal well technology. At December 31, 2018, Encana held a large position in the Montney formation of approximately

11

 


 

486,000 net acres, including 261,000 net undeveloped acres and during the year production averaged approximately 41.5 Mbbls/d of oil and NGLs and approximately 831 MMcf/d of natural gas.

 

Encana utilized the cube development approach which increased efficiency by reducing cycle times and completion costs. This development approach utilizes large multi-well pads and multiple drilling rigs simultaneously, and advances technology to optimize well spacing and completions intensity. During 2018, Encana reduced completions costs by approximately 17.7 percent, primarily through its use of a centralized water hub and automated well monitoring. In 2018, Encana drilled approximately 128 net horizontal wells with lateral lengths ranging from approximately 3,200 to 12,300 feet and inter-well spacing ranging from approximately 520 to 1,100 feet. As Encana continues to optimize well and completion designs, lateral lengths drilled, stage and well spacing may change.

 

As at December 31, 2018, Encana has access to natural gas processing capacity of approximately 1,300 MMcf/d, of which approximately 1,100 MMcf/d is under contract with third parties under varying terms and duration and approximately 215 MMcf/d is owned by the Company. Encana also has access to gathering and compression capacity of approximately 1,600 MMcf/d, of which approximately 1,500 MMcf/d is under contract with third parties under varying terms and duration and approximately 100 MMcf/d is owned by the Company. During the third quarter of 2018, access to liquids handling capacity increased due to one new facility that provides processing under contract with third parties.

 

Encana has a partnership agreement with a subsidiary of Mitsubishi Corporation (“Mitsubishi”), the Cutbank Ridge Partnership (“CRP”), to jointly develop certain lands predominately in the Montney formation. Under the agreement, Mitsubishi agreed to invest approximately C$2.9 billion for its 40 percent partnership interest in the CRP, of which the investment has been substantially received as of December 31, 2018.  The remaining C$101.7 million is expected to be invested in 2019.

 

Duvernay

 

Duvernay is a liquids rich shale gas play located in west central Alberta and includes properties that are primarily located in the Duvernay formation, which extends across the Simonette, Pinto, Edson and Willesden Green properties, but also holds potential in other overlapping formations such as the Montney. As at December 31, 2018, Encana controlled approximately 264,000 net acres, including 219,000 net undeveloped acres in the play. 

 

Encana is currently targeting the development of condensate rich locations in the Simonette area and area overlapping the Montney formation using multi-well pad horizontal drilling technology. During 2018, Encana focused on efficient development to fill existing processing capacity, reducing drilling days and increasing lateral lengths drilled to maximize capital efficiency. Encana drilled approximately 10 net wells during the year with lateral lengths ranging from approximately 9,000 to 12,700 feet with inter-well spacing averaging approximately 1,000 feet. As Encana continues to optimize well and completion designs, lateral lengths drilled, stage and well spacing may change. In 2018, production averaged approximately 7.9 Mbbls/d of oil and NGLs and approximately 59 MMcf/d of natural gas.

 

Encana holds an approximate 50.1 percent ownership in three Simonette natural gas processing plants and the associated gathering and compression, of which Encana’s share of natural gas processing capacity is approximately 103 MMcf/d with NGLs production capacity of approximately 18.0 Mbbls/d.

 

Other Upstream Operations:

 

Wheatland

 

Wheatland is located in southern Alberta and includes producing horizons primarily in the coals and sands of the Cretaceous Edmonton and Belly River Groups. As at December 31, 2018, Encana had approximately 428 net producing wells and controlled approximately 206,000 net acres in the play. In 2018, natural gas production averaged approximately 5 MMcf/d.

 

12

 


 

Horn River

 

Horn River is located in northeast British Columbia, where development was historically in the Horn River Basin shales (Muskwa, Otter Park and Evie), which are upwards of 500 feet thick. In 2018, Encana’s natural gas production averaged approximately 43 MMcf/d. As at December 31, 2018, Encana had approximately 48 net producing horizontal wells and controlled approximately 164,000 net acres in the Horn River Basin shales. Encana owns an interest in natural gas compression capacity in Horn River of approximately 285 MMcf/d at various facilities in the area. Encana has a take or pay commitment under the Cabin plant natural gas processing arrangement with a third party, which has a remaining term of 15 years.

 

Deep Panuke

 

Encana is the owner and operator of the Deep Panuke natural gas field located offshore Nova Scotia, which is approximately 250 kilometres southeast of Halifax on the Scotian shelf. The offshore Production Field Centre (“PFC”) utilized for operations is under a lease arrangement which has an initial term that expires in 2021.

 

In May 2018, Encana permanently ceased production at Deep Panuke and has begun planning decommissioning activities for the PFC and wells.  In June 2018, Encana filed an application with the regulatory authority to abandon and decommission the PFC and related subsea facilities, wells and pipeline.


13

 


 

USA Operations

 

Overview: In 2018, the USA Operations had total capital investment of approximately $1,332 million and drilled approximately 170 net wells. Production averaged approximately 89.5 Mbbls/d of oil, approximately 29.0 Mbbls/d of NGLs and approximately 151 MMcf/d of natural gas. At December 31, 2018, the USA Operations had an established land position of approximately 197,000 net acres including approximately 42,000 net undeveloped acres. In addition, the USA Operations accounted for 60 percent of production sales during 2018 and 47 percent of total proved reserves as at December 31, 2018.

 

During 2018, Encana divested of approximately 182,000 net acres in San Juan located in northwest New Mexico.

 

The following tables summarize the USA Operations 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, 2018)

Gross

Net

Gross

Net

Gross

Net

Eagle Ford

43

41

1

1

44

42

96%

Permian

99

91

26

24

125

115

92%

Other Upstream Operations (1)

27

23

25

17

52

40

76%

Total USA Operations

169

155

52

42

221

197

89%

(1) Other Upstream Operations comprise assets that are not part of Encana’s strategic focus.

 



Producing Wells

 

Oil

Natural Gas

Total

(number of wells at December 31, 2018) (1)

 

Gross

Net

Gross

Net

Gross

Net

Eagle Ford

 

482

461

55

51

537

512

Permian

 

1,482

1,405

2

2

1,484

1,407

Other Upstream Operations (2)

 

26

-

135

124

161

124

Total USA Operations

 

1,990

1,866

192

177

2,182

2,043

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

(2) Other Upstream Operations primarily comprise assets that are not part of Encana’s strategic focus.

 

 

 

 

NGLs

 

Production

Oil

(Mbbls/d)

Plant Condensate

(Mbbls/d)

Other

(Mbbls/d)

Total

(Mbbls/d)

Natural Gas

(MMcf/d)

(average daily)

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

Eagle Ford

28.4

30.8

1.6

1.4

6.8

6.8

8.4

8.2

52

51

Permian

58.8

41.4

2.1

1.5

17.2

12.1

19.3

13.6

86

67

Other Upstream Operations (1, 2)

2.3

3.7

0.1

0.3

1.2

1.6

1.3

1.9

13

148

Total USA Operations

89.5

75.9

3.8

3.2

25.2

20.5

29.0

23.7

151

266

(1)Other Upstream Operations primarily comprise assets that are not part of Encana’s strategic focus.

(2)Other Upstream Operations includes production from San Juan which was divested in 2018 and from Piceance and TMS which were divested in 2017.  

 

Eagle Ford

 

Eagle Ford is a tight oil play located in south Texas in the Karnes and Atascosa counties. The focus is on the development of the thickest portion of the Eagle Ford shale in the Karnes Trough, where Encana holds a largely contiguous position. At December 31, 2018, Encana controlled approximately 42,000 net acres in the play. Encana is focused on developing the lower Eagle Ford, as well as optimizing upper Eagle Ford, Austin Chalk and Graben targets exclusively using horizontal drilling. During 2018, Encana drilled approximately 55 net wells in the area with lateral lengths ranging from approximately 2,000 to 8,000 feet with an average measured total depth of approximately 17,000 feet. Production averaged approximately 28.4 Mbbls/d of oil, approximately 8.4 Mbbls/d of NGLs and approximately 52 MMcf/d of natural gas during the year.

14

 


 

During 2018, Encana continued to focus on precision well targeting, spacing and stacking optimization and improving completions designs. Performance improvements were achieved from employing advanced completion designs, pumping higher volumes of fluid and proppant with tighter cluster spacing of less than 20 feet, resulting in increased well productivity and optimized capital efficiency. In addition, Encana expanded development activity in the Austin Chalk and delineation of Graben, drilling 20 net horizontal wells in 2018. As Encana continues to optimize development and apply advanced completions designs, lateral lengths drilled, cluster spacing and well spacing may change.  Encana also focused on maintaining cost controls by negotiating better contract pricing, automation of well control, optimizing artificial lift systems and streamlining well interventions.

The play is located within close proximity to markets and has a well-developed infrastructure. Oil and natural gas production is gathered at various production facilities, with the majority of the oil subsequently transported to sales points by pipeline or trucked from facilities depending on the sales contract. Encana has access to firm natural gas gathering capacity of up to approximately 50 MMcf/d and firm processing capacity of up to approximately 80 MMcf/d with third parties under varying terms and duration.  During 2018, Encana owned liquids processing capacity increased by 15.0 Mbbls/d with the addition of two new facilities to support Eagle Ford’s growth profile. Encana also utilizes interruptible capacity arrangements for excess production.

 

Permian

 

Permian is a tight oil play located in west Texas in the Midland, Martin, Howard, Glasscock and Upton counties. The primary focus is on the development of the Spraberry and Wolfcamp formations in the Midland basin, where Encana holds a large position. At December 31, 2018, Encana controlled approximately 115,000 net acres in the play. The properties are characterized by exposure of up to 11 potential producing horizons spanning approximately 4,000 feet of stratigraphy (also referred to as “stacked pay”), an extensive production history and developed infrastructure. In 2018, production averaged approximately 58.8 Mbbls/d of oil, approximately 19.3 Mbbls/d of NGLs and approximately 86 MMcf/d of natural gas.

 

During 2018, Encana continued to focus on maximizing efficiency improvements at an industrial scale and maximizing resource recovery by accessing layers of the stacked pay simultaneously using the cube development approach. This approach utilizes large multi-well pads, multi-rig spreads and frac spreads running in parallel to optimize cycle times, increase capital efficiency and reduce costs through economies of scale from higher utilization of services and consumable supplies, while minimizing the development or surface footprint. Encana focused on well productivity by optimizing completions designs, precision targeting of the wells drilled, tighter cluster spacing and using cleaner and thinner fluids to maximize fracture complexity. Encana also improved capital efficiency through its centralized water infrastructure, increased use of recycled water and use of in-basin sand. During 2018, Encana drilled 110 horizontal net wells with lateral lengths ranging from approximately 6,500 to 11,100 feet at a measured average total depth of approximately 18,300 feet with well spacing ranging from approximately 500 to 1,000 feet. As Encana continues to optimize well and completion designs, lateral lengths drilled, stage and well spacing may change.

 

Oil and natural gas facilities include field gathering systems, storage batteries, saltwater disposal systems, separation equipment and pumping units. The majority of Encana’s acreage and associated oil production is dedicated to a pipeline gathering agreement, which has a total remaining term of 11 years including optional renewal terms. In the event of pipeline capacity constraints, Encana’s oil production is trucked by a third party. Natural gas is delivered by Encana to the purchaser’s meter and pipeline interconnection point in the field.

 


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PROVED RESERVES AND OTHER OIL AND GAS INFORMATION

 

The process of estimating oil, NGLs and natural gas reserves is complex and requires significant judgment. Encana’s estimates of proved reserves and associated future net cash flows were evaluated and prepared by the Company’s internal qualified reserves evaluators (“QREs”) and are the responsibility of management. As a result, Encana has developed internal policies that prescribe procedures and standards to be followed for preparing, estimating and recording reserves in compliance with SEC definitions and regulations. Encana’s policies assign responsibilities for compliance in booking reserves and require that reserve estimates be made by its QREs. QRE is defined as a registered professional licensed to practice engineering, geology, geophysics and an individual who has a minimum of five years practical experience, with at least three recent years of experience in the evaluation of reserves.

 

Encana’s Vice-President, Corporate Reserves & Chief Reservoir Engineering and nine other staff (collectively, the “Corporate Reserves Group”) under this individual’s direction, oversee the internal preparation, review and approval of the reserves estimates. The Corporate Reserves Group reports to the Executive Vice-President, Exploration & Business Development and is separate and independent from the preparation of reserves estimates which are within operations who report to Encana’s Executive Vice-President & Chief Operating Officer. The Corporate Reserves Group maintains Encana’s internal policies that prescribe procedures and standards to be followed for preparing, estimating and recording reserves, which includes updating the Company’s reserves manual, and also conducts periodic internal audits of the procedures, records and controls relating to the preparation of reserves estimates. Encana’s QREs receive ongoing education on the fundamentals of SEC definitions and reserves reporting through the review of the Company’s reserves manual and internal training programs administered by the Corporate Reserves Group. The Corporate Reserves Group also oversees the engagement of independent qualified reserves evaluators (“IQREs”) or independent qualified reserves auditors (“IQRAs”), if any, retained by the Company.

 

As a member of the Corporate Reserves Group, the Company’s Director, Corporate Reserves reports to Encana’s Vice-President, Corporate Reserves & Chief Reservoir Engineering and is primarily responsible for overseeing the preparation of proved reserves estimates. The Director, Corporate Reserves has a Bachelor of Science with a degree in Petroleum Engineering from the University of Alberta, is a member of the Association of Professional Engineers and Geoscientists of Alberta (APEGA) and the Society of Petroleum Evaluation Engineers (Calgary Chapter).

 

Annually, each play is reviewed in detail by the QREs, the Corporate Reserves Group, the Company’s executive officers and an internal Reserves Review Committee, as appropriate. The Corporate Reserves Group also conducts a separate review to ensure the effectiveness of the disclosure controls and that the reserves estimates are free from material misstatement. The final reserves estimates are reviewed by Encana’s Reserves Committee of the Board of Directors (the “Reserves Committee”), for approval by the Board of Directors. The Reserves Committee comprises directors that are independent and familiar with estimating oil and gas reserves and disclosure requirements. The Reserves Committee provides additional oversight to the Company’s reserves process, meeting with management periodically to review the reserves process, the portfolio of properties results and related disclosures. The Reserves Committee is also responsible for reviewing the qualifications and appointment of IQREs or IQRAs, if any, retained by the Company, including recommending the selection of such IQREs or IQRAs to the Board of Directors for its approval, and will meet with such IQREs or IQRAs to review their reports.

 

For year-ended December 31, 2018, Encana involved IQRAs to audit and review the processes relating to the Company’s internal oil and gas reserve estimates for certain properties. In 2018, McDaniel & Associates Consultants Ltd. audited 23 percent of Encana’s estimated Canadian proved reserves volumes and Netherland, Sewell & Associates, Inc. audited 54 percent of Encana’s estimated U.S. proved reserves volumes. An audit of reserves is an examination of a company’s oil and gas reserves and future net cash flows by an independent petroleum consultant that is conducted for the purpose of expressing an opinion as to whether such estimates, in aggregate, are reasonable and have been estimated and presented in conformity with generally accepted petroleum engineering and evaluation methods and procedures.

 

Proved oil and gas reserves are those quantities of oil, gas and NGLs which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from known reservoirs under existing economic conditions, operating methods and government regulations. To be considered proved, oil and gas reserves must be economically producible before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. Also, the project to extract the hydrocarbons must have

16

 


 

commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years.

 

The Company’s reserve estimates are conducted from fundamental petrophysical, geological, engineering, financial and accounting data. Reserves are estimated based on production decline analysis, analogy to producing offsets, detailed reservoir modeling, volumetric calculations or a combination of these methods, in all cases having regard to economic considerations and using technologies that have been demonstrated in the field to yield repeatable and consistent results as defined in the SEC regulations. Data used in assessments include information obtained directly from the subsurface through wellbores such as well logs, reservoir core samples, fluid samples, static and dynamic pressure information, production test data, and surveillance and performance information. 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. The tools used to interpret the data included proprietary and commercially available reservoir modeling and simulation software. Reservoir parameters from analogous reservoirs were used to increase the quality of and confidence in the reserves estimates when available. The method or combination of methods used to estimate the reserves of each reservoir are based on the unique circumstances of each reservoir and the dataset available at the time of the estimate.

 

In general, estimates of economically recoverable reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of crude oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies, and future operating costs, all of which may vary materially from actual results. For those reasons, among others, estimates of the economically recoverable crude oil and natural gas reserves attributable to any particular group of properties and estimates of future net revenues associated with reserves may vary and such variations may be material. The actual production, revenues, taxes and development, and operating expenditures with respect to the reserves associated with the Company's properties may vary from the information presented herein, and such variations could be material.

 

The SEC regulations require that proved reserves be estimated using existing economic conditions (constant pricing). Based on this methodology, Encana’s reserves have been calculated utilizing the 12-month average trailing historical price for each of the years presented prior to the effective date of the report. The 12-month average is calculated as an unweighted average of the first-day-of-the-month price for each month. The reserves estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.

 

Encana does not file any estimates of total net proved reserves with any U.S. federal authority or agency other than the SEC and the Department of Energy (“DOE”). Reserve estimates filed with the SEC correspond with the estimates of the Company’s reserves contained in its reports. Reserve estimates filed with the DOE are based upon the same underlying technical and economic assumptions as the estimates of Encana’s reserves that are filed with the SEC, however, the DOE requires reports to include the interests of all owners in wells that Encana operates and to exclude all interests in wells that Encana does not operate. Encana is also 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”) which is filed concurrently on SEDAR at www.sedar.com under Encana’s issuer profile. The primary differences between NI 51-101 reporting requirements and SEC requirements include the disclosure of proved and probable reserves estimated using forecast prices and costs, presentation of reserves and production before royalties and granular product type disclosures. The reserves data prepared in accordance with NI 51-101 do not form part of this Annual Report on Form 10-K.

 

The reserves and other oil and gas information set forth below has an effective date of December 31, 2018 and was prepared as of January 11, 2019. The audit reports prepared by the IQRAs are attached in Exhibits 99.1 and 99.2 of this Annual Report on Form 10-K.

 

The following table is a summary of the Company’s proved reserves and estimates of future net cash flows and discounted future net cash flows from proved reserves information relating to proved reserves which can also be found in Note 27 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

17

 


 

Proved Reserves

 

The table below summarizes the Company’s total proved reserves by oil, NGLs and natural gas and by geographic area as at December 31, 2018 and other summary operating data.

 

 

 

As at December 31, 2018

 

 

Canada

 

U.S.

 

Total

Proved Reserves:(1)

 

 

 

 

 

 

Oil (MMbbls):

 

 

 

 

 

 

Developed

 

0.2

 

150.6

 

150.9

Undeveloped

 

-

 

200.9

 

200.9

Total

 

0.2

 

351.5

 

351.8

 

 

 

 

 

 

 

Natural Gas Liquids (MMbbls):

 

 

 

 

 

 

Developed

 

60.8

 

59.4

 

120.2

Undeveloped

 

97.8

 

62.8

 

160.6

Total

 

158.5

 

122.3

 

280.8

 

 

 

 

 

 

 

Natural Gas (Bcf):

 

 

 

 

 

 

Developed

 

1,707

 

295

 

2,002

Undeveloped

 

1,195

 

302

 

1,497

Total

 

2,901

 

598

 

3,499

 

 

 

 

 

 

 

Total Proved Reserves (MMBOE):

 

 

 

 

 

 

Developed

 

345.4

 

259.3

 

604.7

Undeveloped

 

296.9

 

314.1

 

611.0

Total

 

642.3

 

573.4

 

1,215.7

 

 

 

 

 

 

 

Percent Proved Developed

 

54%

 

45%

 

50%

Percent Proved Undeveloped

 

46%

 

55%

 

50%

 

 

 

 

 

 

 

Production (MBOE/d)

 

217.5

 

143.7

 

361.2

Capital Investments (millions)

 

$632

 

$1,332

 

$1,964

Total Net Producing Wells (2)

 

1,863

 

2,288

 

4,151

Standardized Measure of Discounted Net Cash Flows: (3)

 

 

 

 

 

Pre-Tax (millions)

 

$2,975

 

$7,492

 

$10,467

Taxes (millions)

 

321

 

542

 

863

After-Tax (millions)

 

$2,654

 

$6,950

 

$9,604

 

(1)

Numbers may not add due to rounding.

(2)

Total net producing wells includes producing wells and wells mechanically capable of production.

(3)

The Pre-Tax standardized measure of discounted cash flows (“standardized measure”) is a non-GAAP measure. The Company believes the Pre-Tax standardized measure is a useful measure in addition to the After-Tax standardized measure, as it assists in both the estimation of future cash flows of the current reserves as well as in making relative value comparisons among peer companies. The After-Tax standardized measure is dependent on the unique tax situation of each individual company, while the Pre-Tax standardized measure is based on prices and discount factors, which are more consistent between peer companies. See Note 27 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for the standardized measure.

 

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Changes to the Company’s proved reserves during 2018 are summarized in the table below:

 

2018

 

Oil

(MMbbls)

NGLs

(MMbbls)

Natural Gas

(Bcf)

Total

(MMBOE)

Beginning of year (1)

192.5

182.5

2,519

794.9

  Revisions and improved recovery (2)

19.7

(3.2)

285

64.1

  Extensions and discoveries

162.4

127.4

1,118

476.2

  Purchase of reserves in place

21.3

7.7

39

35.5

  Sale of reserves in place

(11.4)

(5.1)

(40)

(23.1)

  Production

(32.8)

(28.5)

(423)

(131.9)

End of year

351.8

280.8

3,499

1,215.7

Developed

150.9

120.2

2,002

604.7

Undeveloped

200.9

160.6

1,497

611.0

Total

351.8

280.8

3,499

1,215.7

(1)

Numbers may not add due to rounding.

(2)

Changes in reserve estimates resulting from application of improved recovery techniques are nil and are included in revisions of previous estimates.

 

In 2018, Encana’s proved reserves of 1,215.7 MMBOE increased 420.8 MMBOE from 2017 primarily due to extensions and discoveries of 476.2 MMBOE from successful drilling and delineation of the Permian, Montney, Eagle Ford, and Duvernay. Approximately 61% of the 2018 extensions and discoveries were crude oil, condensate and NGLs. Revisions of previous estimates of 64.1 MMBOE included negative revisions of 79.0 MMBOE due to changes in the approved development plan, more than offset by positive forecast changes other than price of 133.7 MMBOE resulting from well performance and development strategy and higher 12-month average trailing prices of 9.4 MMBOE.

 

Purchases of 35.5 MMBOE were primarily in the Permian and sales of reserves in place of 23.1 MMBOE were primarily associated with the divestiture of San Juan. Production for 2018 was 131.9 MMBOE.

 

Proved reserves are estimated based on the average beginning-of-month prices during the 12-month period for the respective year. The average prices used to compute proved reserves at December 31, 2018 were WTI: $65.56 per bbl, Edmonton Condensate: C$79.59 per bbl, Henry Hub: $3.10 per MMBtu, and AECO: C$1.49 per MMBtu. Prices for natural gas, oil and NGLs can fluctuate widely.

 

Proved Undeveloped Reserves  

 

Changes to the Company’s proved undeveloped reserves during 2018 are summarized in the table below:

(MMBOE)

 

2018

Beginning of year

387.1

  Revisions of prior estimates

(52.2)

  Extensions and discoveries

404.2

  Conversions to developed

(153.8)

  Purchase of reserves in place

33.9

  Sale of reserves in place

(8.1)

End of Year

611.0

* Numbers may not add due to rounding.

 

As of December 31, 2018, there were no proved undeveloped reserves that will remain undeveloped for five years or more.

 

Extensions and discoveries of 404.2 MMBOE of proved undeveloped reserves were the result of successful drilling and delineation in the Permian, Montney, and Eagle Ford. Revisions of previous estimates of proved undeveloped reserves were revised down by 52.2 MMBOE primarily due to the removal of proved undeveloped locations of 79.0 MMBOE resulting from changes in the development plan related to Montney, Permian, Eagle Ford, and Duvernay, where specific locations previously planned to be drilled within five years were shifted to a later development timeframe or removed and replaced with different locations that are included in extensions and discoveries. In

19

 


 

addition, revisions of previous estimates included a positive revision of 24.3 MMBOE from increased well performance.

 

Conversions of proved undeveloped reserves to proved developed status were 153.8 MMBOE, equating to 40 percent of the total prior year-end proved undeveloped reserves. Approximately 69 percent of proved undeveloped reserves conversions occurred in Canada in Montney and Duvernay and 31 percent occurred in the U.S. in Permian and Eagle Ford. Encana spent approximately $929 million to develop proved undeveloped reserves in 2018, of which approximately 38 percent related to the Canadian properties and 62 percent related to the U.S. properties.

 

Purchases of proved undeveloped reserves of 33.9 MMBOE relate to acquisitions in the Permian and Eagle Ford. Sales of proved undeveloped reserves of 8.1 MMBOE relate primarily to the disposition of San Juan.

 

Sales Volumes, Prices and Production Costs  

 

The following table summarizes the Company’s production by final product sold, average sales price, and production cost per BOE for each of the last three years by geographic area:

 

 

 

Production

 

Average Sales Price (1)

 

Average Production Cost (2)

 

 

Oil

(MMbbls)

 

NGLs

(MMbbls)

 

Natural Gas

(Bcf)

 

Oil

($/bbl)

 

NGLs

($/bbl)

 

Natural Gas

($/Mcf)

 

($/BOE)

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada (3)

 

0.1

 

18.0

 

368

 

52.54

 

48.05

 

2.24

 

12.00

USA

 

32.7

 

10.5

 

55

 

64.05

 

27.21

 

2.28

 

8.19

Total

 

32.8

 

28.5

 

423

 

64.00

 

40.31

 

2.25

 

10.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada (3)

 

0.1

 

10.6

 

306

 

42.33

 

45.35

 

2.16

 

11.46

USA

 

27.7

 

8.7

 

97

 

49.14

 

22.30

 

3.03

 

9.42

Total

 

27.8

 

19.3

 

403

 

49.10

 

34.98

 

2.37

 

10.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016 (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

0.7

 

9.2

 

353

 

36.32

 

32.32

 

1.77

 

10.69

USA

 

26.3

 

8.5

 

153

 

38.67

 

14.86

 

2.29

 

10.89

Total

 

27.0

 

17.7

 

506

 

38.61

 

23.94

 

1.93

 

10.78

 

(1)Excludes the impact of commodity derivatives.

(2)Excludes ad valorem, severance and property taxes.

(3)Annual production from fields that comprise greater than 15% of the Company’s total proved reserves as at December 31, 2018 related to Dawson North in Montney and included 164 Bcf of natural gas (2017 – 81 Bcf; 2016 – 89 Bcf) and 8.5 MMbbls of NGLs (2017 – 2.3 MMbbls; 2016 – 1.3 MMbbls).

(4) Encana had no fields where annual production comprised greater than 15% of the Company’s total proved reserves for the periods ended December 31, 2016.

 

20

 


 

Drilling and other exploratory and development activities (1, 2)

The following tables summarize Encana’s gross participation and net interest in wells drilled for the periods indicated by geographic area.

 

 

Exploratory

Development

Total

 

Productive

Dry

Productive

Dry

Productive

Dry

 

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

Gross

Net

2018

 

 

 

 

 

 

 

 

 

 

 

 

Canada

1

1

-

-

213

138

-

-

214

139

-

-

USA

-

-

-

-

187

170

-

-

187

170

-

-

Total

1

1

-

-

400

308

-

-

401

309

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

Canada

2

1

-

-

189

116

-

-

191

117

-

-

USA

-

-

-

-

183

168

-

-

183

168

-

-

Total

2

1

-

-

372

284

-

-

374

285

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

Canada

1

-

1

-

100

44

3

-

101

44

4

-

USA

3

3

-

-

124

113

-

-

127

116

-

-

Total

4

3

1

-

224

157

3

-

228

160

4

-

 

(1) “Gross” wells are the total number of wells in which Encana has an interest.

(2) “Net” wells are the number of wells obtained by aggregating Encana’s working interest in each of its gross wells.

 

Drilling and other exploratory and development activities (1, 2)

 

The following table summarizes the number of wells in the process of drilling or in active completion stages and the number of wells suspended or waiting on completion by geographic area at December 31, 2018.

 

 

Wells in the Process of Drilling or in Active Completion

Wells Suspended or Waiting on Completion (3)

 

Exploratory

Development

Exploratory

Development

 

Gross

Net

Gross

Net

Gross

Net

Gross

Net

2018

 

 

 

 

 

 

 

 

Canada

-

-

6

4

-

-

30

21

USA

-

-

43

43

-

-

1

1

Total

-

-

49

47

-

-

31

22

 

 

 

 

 

 

 

 

 

(1) “Gross” wells are the total number of wells in which Encana has an interest.

(2) “Net” wells are the number of wells obtained by aggregating Encana’s working interest in each of its gross wells.

(3) Wells suspended or waiting on completion include exploratory and development wells where drilling has occurred, but the wells are awaiting the completion of hydraulic fracturing or other completion activities or the resumption of drilling in the future.

 

Oil and gas properties, wells, operations, and acreage

 

The following table summarizes the number of producing wells and wells mechanically capable of production by geographic area at December 31, 2018.

 

Productive Wells (1, 2)

Oil (3)

Natural Gas (4)

Total

 

Gross

Net

Gross

Net

Gross

Net

2018

 

 

 

 

 

 

Canada

31

16

2,327

1,847

2,358

1,863

USA

2,202

2,072

234

216

2,436

2,288

Total

2,233

2,088

2,561

2,063

4,794

4,151

 

 

 

 

 

 

 

(1)

“Gross” wells are the total number of wells in which Encana has an interest.

(2)

“Net” wells are the number of wells obtained by aggregating Encana’s working interest in each of its gross wells.

(3)

Includes 58 gross oil wells (34 net oil wells) containing multiple completions.

(4)

Includes 1,991 gross natural gas wells (1,592 net natural gas wells) containing multiple completions.

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The following table summarizes Encana’s developed, undeveloped and total landholdings by geographic area as at December 31, 2018.  

Landholdings (1 - 6)

 

 

Developed

Undeveloped

Total

(thousands of acres)

 

Gross

Net

Gross

Net

Gross

Net

Canada

 

 

 

 

 

 

 

Onshore

 — Crown

828

516

1,689

1,100

2,517

1,616

 

 — Freehold

46

29

136

83

182

112

 

— Fee

1

1

3

3

4

4

Offshore

 — Crown

20

20

56

12

76

32

Total Canada

 

895

566

1,884

1,198

2,779

1,764

United States

 

 

 

 

 

 

 

 

 — Federal/State

13

11

15

14

28

25

 

 — Freehold

155

144

32

27

187

171

 

 — Fee

1

-

5

1

6

1

Total United States

 

169

155

52

42

221

197

International

 

 

 

 

 

 

 

Australia

 

-

-

104

40

104

40

Total International

 

-

-

104

40

104

40

Total

 

1,064

721

2,040

1,280

3,104

2,001

 

(1)Fee lands are those lands in which Encana has a fee simple interest in the mineral rights and has either: (i) not leased out all the mineral zones; (ii) retained a working interest; or (iii) one or more substances or products that have not been leased. The current fee lands acreage summary includes all fee titles owned by Encana that have one or more zones that remain unleased or available for development.

(2)Crown/Federal/State lands are those owned by the federal, provincial or state government or First Nations, in which Encana has purchased a working interest lease.

(3)Freehold lands are owned by individuals (other than a government or Encana), in which Encana holds a working interest lease.

(4)Gross acres are the total area of properties in which Encana has an interest.

(5)Net acres are the sum of Encana’s fractional interest in gross acres.

(6)Undeveloped acreage refers to those acres on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or gas regardless of whether such acreage contains proved reserves.

 

Of the total 2.0 million net acres, approximately 0.7 million net acres is held by production. The table above includes acreage subject to leases that will expire over the next three years: 2019 – approximately 193,000 net acres; 2020 – approximately 134,000 net acres; and 2021 – approximately 141,000 net acres, if the Company does not establish production or take any other action to extend the terms. For acreage that the Company intends to further develop, Encana will perform operational and administrative actions to continue the lease terms that are set to expire. As a result, it is not expected that a significant portion of the Company’s net acreage will expire before such actions occur.  

 

Title to Properties  

 

As is customary in the oil and natural gas industry, a preliminary review of title records, which may include opinions or reports of appropriate professionals or counsel, is made at the time Encana acquires properties. The Company believes that title to all of the various interests set forth in the above table is satisfactory and consistent with the standards generally accepted in the oil and gas industry, subject only to immaterial exceptions that do not detract substantially from the value of the interests or materially interfere with their use in Encana’s operations. The interests owned by Encana may be subject to one or more royalty, overriding royalty, or other outstanding interests (including disputes related to such interests) customary in the industry. The interests may additionally be subject to obligations or duties under applicable laws, ordinances, rules, regulations, and orders of arbitral or governmental authorities. In addition, the interests may be subject to burdens such as production payments, net profits interests, liens incident to operating agreements and current taxes, development obligations under oil and gas leases, and other encumbrances, easements, and restrictions, none of which detract substantially from the value of the interests or materially interfere with their use in the Company’s operations.

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MARKETING ACTIVITIES

 

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. In marketing production, Encana looks to minimize market related shut-ins, maximize realized prices and manage concentration of credit-risk exposure. Market Optimization activities include third party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. In conjunction with certain divestitures, Encana has also agreed to market and transport certain portions of the acquirer’s production with remaining terms of less than three years.

 

Encana’s produced oil, NGLs and natural gas, are primarily marketed to refiners, local distributing companies, energy marketing companies and electronic exchanges. Prices received by Encana are based primarily upon prevailing market index prices in the region in which it is sold. Prices are impacted by regional and global supply and demand and by competing fuels in such markets.

 

Encana’s oil production is sold under short term and evergreen contracts, long term contracts or under dedication agreements, for which prices received by Encana are based primarily upon the prevailing index prices in the relevant region where the product is sold. Encana’s NGLs production is sold under short term and long-term contracts that range up to 10 years, or under dedication arrangements at the relevant market price at the time the product is sold. Encana's natural gas production is sold under short-term delivery contracts with terms less than two years in duration, at the relevant monthly or daily market price at the time the product is sold. The Company also has firm transport contracts to deliver natural gas production to other downstream markets, including Dawn.

 

Encana also seeks to mitigate the market risk associated with future cash flows by entering into various financial derivative instruments used to manage price risk relating to produced oil, NGLs and natural gas. Details of contracts related to Encana’s various financial risk management positions are found in Note 23 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

 

The Company enters into various contractual agreements to sell oil, NGLs and natural gas, some of which require the delivery of fixed and determinable quantities. As of December 31, 2018, Encana was committed to deliver approximately 7,700 Mbbls of oil and NGLs and approximately 121,800 MMcf of natural gas in the Canadian Operations and approximately 37,000 Mbbls of oil and approximately 58,600 MMcf of natural gas in the USA Operations with varying contract terms up to 5 years.

 

Certain transportation and processing commitments result in the following financial commitments:

 

 

 

 

 

 

 

 

 

 

($ millions)

1 Year

 

2-3 Years

 

4-5 Years

 

> 5 years

 

Total

Transportation & Processing

 

 

 

 

 

 

 

 

 

Canadian Operations

 

 

 

 

 

 

 

 

 

  Oil & NGLs

67

 

154

 

160

 

347

 

728

  Natural Gas

388

 

699

 

526

 

1,749

 

3,362

  Total Canadian Operations

455

 

853

 

686

 

2,096

 

4,090

 

 

 

 

 

 

 

 

 

 

USA Operations

 

 

 

 

 

 

 

 

 

  Oil & NGLs

3

 

6

 

7

 

14

 

30

  Natural Gas

227

 

400

 

315

 

110

 

1,052

  Total USA Operations

230

 

406

 

322

 

124

 

1,082

Total Canadian and USA Operations

685

 

1,259

 

1,008

 

2,220

 

5,172

 

In general, Encana expects to fulfill delivery commitments with production from proved developed reserves, with longer term delivery commitments to be filled from the Company’s proved undeveloped reserves. Where proved reserves are not sufficient to satisfy the Company’s delivery commitments, Encana can and may use spot market purchases to satisfy the respective commitments. In addition, for the Company’s long-term transportation and processing agreements, Encana also expects to fulfill delivery commitments from the future development of resources not yet characterized as proved reserves. Likewise, where delivery commitments are not transferred along with property divestitures, Encana may market and transport certain portions of the acquirer’s production to meet the delivery requirements.

 

23

 


 

In addition, production from the Company’s reserves are not subject to any priorities or curtailments that may affect quantities delivered to its customers or any priority allocations or price limitations imposed by federal or state regulatory agencies, or any other factors beyond the Company’s control that may affect Encana’s ability to meet contractual obligations other than those discussed in Item 1A. Risk Factors of this Annual Report on Form 10-K.  

 

MAJOR CUSTOMERS

 

In connection with the marketing and sale of Encana’s production and purchased oil, NGLs and natural gas for the year ended December 31, 2018, the Company had one customer, Royal Dutch Shell, which individually accounted for more than 10 percent of Encana’s consolidated revenues (2017 and 2016 – two customers, Royal Dutch Shell Group and Flint Hills Resources). Encana does not believe that the loss of any single customer would have a material adverse effect on the Company’s financial condition or results of operations. Further information on Encana’s major customers are found in Note 2 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

 

COMPETITION

 

The Company’s competitors include national, integrated and independent oil and gas companies, as well as oil and gas marketers and other participants in other industries supplying energy and fuel to industrial, commercial and individual consumers. 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 oil, NGLs and natural gas reserves;

Reserves and property acquisitions;

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

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 oil, NGLs or natural gas.

 

EMPLOYEES

 

At December 31, 2018, Encana employed 2,065 employees as set forth in the following table.

 

Employees

Canada

1,133

U.S.

932

Total

2,065

 

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

 

ENVIRONMENTAL AND REGULATORY MATTERS

 

As Encana is an owner or lessee and operator of oil and gas properties and facilities in Canada and the United States, the Company is subject to numerous federal, provincial, state, local, tribal and foreign country laws and regulations relating to pollution, protection of the environment and the handling 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, remediating damage caused by the use or release of specified substances, and require suspension or cessation of operations in affected areas. The following are significant areas of government control and regulation affecting Encana’s operations:

 

Exploration and Development Activities

 

Our operations are subject to federal, tribal, state, provincial and local laws and regulations. These laws and regulations relate to matters that include: acquisition of seismic data; location, drilling and casing of wells; well design; hydraulic fracturing; well production; use, transportation, storage and disposal of fluids and materials

24

 


 

incidental to oil and gas operations; surface usage and the restoration of properties upon which wells have been drilled and facilities have been constructed; plugging and abandoning of wells; transportation of production; and calculation and disbursement of royalty payments and production and other taxes.

 

The Company’s operations also are subject to conservation regulations, including the regulation of the size of drilling and spacing units or proration units; the number of wells that may be drilled in a unit; the rate of production allowable from oil and gas wells; and the unitization or pooling of oil and gas properties. In addition, conservation laws generally limit the venting or flaring of natural gas and impose certain requirements regarding the ratable purchase of production. These regulations limit the amounts of oil and gas that can be produced from the Company’s wells and the number of wells or the locations that can be drilled.

Environmental and Occupational Regulations

 

The Company is subject to many federal, state, provincial, local and tribal laws and regulations concerning occupational health and safety as well as the discharge of materials into, and the protection of, the environment. Environmental laws and regulations relate to:

 

  the discharge of pollutants into federal, provincial and state waters; 

  assessing the environmental impact of seismic acquisition, drilling or construction activities; 

  the generation, storage, transportation and disposal of waste materials, including hazardous substances; 

  the emission of certain gases into the atmosphere; 

 the sourcing and disposal of water; 

 the protection of endangered species and habitat; 

 

 

 the monitoring, abandonment, reclamation and remediation of well and other sites, including sites of former operations;

  the development of emergency response and spill contingency plans; and

  employee health and safety.

 

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil, and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; the occurrence of delays in the permitting, development or expansion of projects; and the issuance of injunctions restricting or prohibiting some or all of the Company’s activities in a particular area. Although environmental requirements have a substantial impact upon the energy industry as a whole, Encana does not believe that these requirements affect the Company differently, to any material degree, as compared to other companies in the oil and natural gas industry. For further information regarding regulations relating to environmental protection, see Item 1A. Risk Factors of this Annual Report on Form 10-K.

 

Operating and capital costs incurred to comply with the requirements of these laws and regulations are necessary business costs in the oil and gas industry. As a result, Encana has established policies for continuing compliance with environmental laws and regulations. The Corporate Responsibility, Environment, Health and Safety Committee of the 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 performance in day-to-day operations, as well as inspections and assessments, are designed to provide assurance that environmental and regulatory standards are met. The Company has established operating procedures and training programs designed to limit the environmental impact of the Company’s field facilities and identify, communicate and comply with changes in existing laws and regulations. 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. In addition, the Board of Directors is advised of significant contraventions thereof, and receives updates on trends, issues or events which could have a significant impact on the Company.

 

The Company believes that it is in material compliance with existing environmental and occupational health and safety regulations. Further, the Company believes that the cost of maintaining compliance with these existing laws and regulations will not have a material adverse effect on its business, financial condition or results of operations. In addition, Encana maintains insurance coverage for insurable risks against certain environmental and occupational health and safety risks that is consistent with insurance coverage held by other similarly situated industry participants, but the Company is not fully insured against all such risks. However, it is possible that developments, such as new or more stringently applied existing laws and regulations as well as claims for damages to property or

25

 


 

persons resulting from the Company’s operations, could result in substantial costs and liabilities to the Company. As a result, Encana is unable to predict with any reasonable degree of certainty future exposures concerning such matters.

 

EXECUTIVE OFFICERS OF THE REGISTRANT

 

Encana’s Executive Officers are set out in the table below:

Name

Age (1)

Years Served

as Executive Officer

Corporate Office

 

 

 

 

Douglas J. Suttles

58

6

President & Chief Executive Officer

Joanne L. Alexander

 

52

4

Executive Vice-President & General Counsel

Sherri A. Brillon

 

59

12

Executive Vice-President & Chief Financial Officer

David G. Hill

 

57

5

Executive Vice-President, Exploration & Business Development

Michael G. McAllister

 

60

8

Executive Vice-President & Chief Operating Officer

Michael Williams

 

59

5

Executive Vice-President, Corporate Services

Renee E. Zemljak

 

54

9

Executive Vice-President, Midstream, Marketing & Fundamentals

 

 

(1)

As of February 28, 2019

Mr. Suttles was appointed President & Chief Executive Officer in June 2013. Prior to that, Mr. Suttles was an independent businessman performing consulting services in the oil and gas industry and serving on the boards of one public and one private company from March 2011 until June 2013. Mr. Suttles was also Chief Operating Officer at BP Exploration & Production from January 2009 until March 2011.

 

Ms. Alexander was appointed Executive Vice-President & General Counsel on January 2015. Prior to that, Ms. Alexander was Senior Vice President, General Counsel and Corporate Secretary of Precision Drilling Corporation (a public oil and gas services company) from April 2008 to December 2014 and General Counsel of Marathon Oil Canada Corporation (an oil and gas company) from 2007 to 2008.

 

Ms. Brillon was appointed Executive Vice-President & Chief Financial Officer in November 2009. Ms. Brillon joined one of Encana’s predecessor companies in 1985 and assumed a variety of leadership roles, including her previous position as Executive Vice-President, Strategic Planning and Portfolio Management in January 2007. Ms. Brillon served as a director of the Canadian Chamber of Commerce (a not-for-profit company) from 2007 to 2009, as a director of PrairieSky Royalty Ltd. (a public oil and gas royalty company) from April 2014 to September 2014 and as a director of Tim Horton’s Inc. (a public restaurant company) from November 2013 to December 2014. Ms. Brillon currently sits as a member of the Listed Company Advisory Board for the NYSE.

 

Mr. Hill was appointed Executive Vice-President, Exploration & Business Development in November 2013. Mr. Hill joined Encana in November 2002 and assumed a variety of leadership roles, including his previous position as Vice-President, Natural Gas Economy Operations. Prior to these positions, Mr. Hill was President of TICORA Geosciences (a privately held geosciences company) from 2000 to 2002.

 

Mr. McAllister was appointed Executive Vice-President & Chief Operating Officer in November 2013. Mr. McAllister joined one of Encana’s predecessor companies in June 2000 and assumed a variety of leadership roles, including his previous position as Executive Vice-President & Senior Vice-President, Canadian Division in February 2011. Before joining Encana, Mr. McAllister worked in various technical and leadership roles for Texaco Canada and Imperial Oil Resources.

 

Mr. Williams was appointed Executive Vice-President, Corporate Services in March 2014. Prior to that, Mr. Williams was Executive Vice-President of Corporate Services with Tervita Corporation (a private energy services company) from 2011 to 2014 and Chief Administration Officer for TransAlta Corporation (a public power company) from 2002 to 2011.

 

Ms. Zemljak was appointed Executive Vice-President, Midstream, Marketing & Fundamentals in November 2009. Ms. Zemljak joined one of Encana’s predecessor companies in November 2000 and assumed a variety of leadership

26

 


 

roles, including her previous position as Vice-President of USA Marketing in May 2002. Prior to joining Encana, Ms. Zemljak worked in various roles for Montana Power (formerly a public power company).

 

ITEM 1A. 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, oil or NGLs prices and price differentials could have a material adverse effect on Encana’s financial condition.

 

Encana’s financial performance and condition are substantially dependent on the prevailing prices of natural gas, oil and NGLs. Low natural gas, oil or NGLs prices and significant U.S. and Canadian price differentials will have an adverse effect on the Company’s operations and financial condition and the value and amount of its reserves. Prices for natural gas, oil or NGLs fluctuate in response to changes in the supply and demand for natural gas, oil or NGLs, 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, transportation and infrastructure constraints, prices and availability of alternate sources of energy (including refined products, coal, and renewable energy initiatives) and by technological advances affecting energy consumption. Oil prices are largely determined by international and domestic supply and demand. Factors which affect oil prices include the actions of the OPEC, world economic conditions, government regulation, political stability in the Middle East and elsewhere, the foreign and domestic supply of oil, the price of foreign imports, the availability of alternate fuel sources, transportation and infrastructure constraints and weather conditions. Historically, NGLs prices have generally been correlated with oil prices, and are determined based on supply and demand in international and domestic NGLs markets.

 

A substantial or extended decline in the price of natural gas, oil or NGLs could result in a delay or cancellation of existing or future drilling, development or construction programs or curtailment or shut-in of 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.

 

Natural gas and oil producers in North America, and particularly in Canada, currently receive 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 the applicable accounting standards. If natural gas, oil or NGLs prices decline further, the carrying value of Encana’s assets could be subject to financial downward revisions, and the Company’s net earnings could be adversely affected.

 

Encana’s ability to operate and complete projects is dependent on factors outside of its control which may have a material adverse effect on its business, financial condition or results of operations.

 

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, changes to free trade agreements, reliance on industry partners and service providers, unexpected cost increases, royalties, taxes, including the impact of recent U.S. tax reform and potential U.S. Treasury Department regulations and guidance, volatility in natural gas, oil or NGLs prices, the availability of drilling and other equipment, the ability to access

27

 


 

lands, the ability to access water for hydraulic fracturing operations, physical impacts from adverse weather conditions and other natural disasters, the availability and proximity of processing and pipeline capacity, transportation interruptions and constraints, technology failures, accidents, the availability of skilled labour and reservoir quality. In addition, some of these risks may be magnified due to the concentrated nature of funding certain assets within the Company’s portfolio of oil and natural gas properties that are operated within limited geographic areas. As a result, a number of the Company’s assets could experience any of the same risks and conditions at the same time, resulting in a relatively greater impact on the Company’s financial condition and results of operations compared to other companies that may have a more geographically diversified portfolio of properties.

 

Fluctuations in natural gas, oil or NGLs prices can create fiscal challenges for the oil and gas industry. These conditions have impacted companies in the oil and gas industry and the Company’s spending and operating plans and may continue to do so in the future. There may be unexpected business impacts from market uncertainty, including volatile changes in currency exchange rates, inflation, interest rates, defaults of suppliers and general levels of investing and consuming activity, as well as a 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.

 

Encana’s proved reserves are estimates and any material inaccuracies in our reserves estimates or assumptions underlying our reserves estimates could cause quantities and net present value of our reserves to be overstated or understated.

 

There are numerous uncertainties inherent in estimating quantities of natural gas, oil and NGLs reserves, including many factors beyond the Company’s control. The reserves data in this Annual Report on Form 10-K and other published reserves and resources data represents estimates only. In general, estimates of economically recoverable natural gas, oil and NGLs reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as commodity 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 and resources are only attempts to define the degree of uncertainty involved.

 

For those reasons, estimates of the economically recoverable natural gas, oil and NGLs 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.

 

The estimates of reserves included in this Annual Report on Form 10-K are prepared in accordance with SEC regulations and require, subject to limited exceptions, that proved undeveloped reserves may only be classified as proved reserves if the related wells are scheduled to be drilled within five years after the date of booking. 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. Proved undeveloped reserves may be reclassified to unproved due to delays in the development of reserves, or projects becoming uneconomical due to increases in costs to drill such reserves, or lower future net revenues from further decreases in commodity prices.

 

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Commodity prices used to estimate reserves included in this Annual Report on Form 10-K are calculated as the average oil and natural gas price during the 12 months ending in the current reporting period, determined as the unweighted arithmetic average of prices on the first day of each month within the 12-month period. Significant future price changes can have a material effect on the quantity and value of the Company's proved reserves. The standardized measure of discounted future net cash flows included in this Annual Report on Form 10-K will not represent the current market value of Encana’s estimated reserves. In addition, these reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for unproved undeveloped acreage.

 

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 oil, NGLs and natural gas reserves and production, and therefore its cash flows, are highly dependent upon its success in developing 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. In addition, part of Encana’s strategy is focused on a limited number of core assets which results in a concentration of capital and increased potential risks. To the extent that cash flows from the Company’s 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 NGLs reserves and production 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.

 

In addition, Encana’s operations utilize horizontal multi-pad drilling, tighter drill spacing and completions techniques that evolve over time as learnings are captured and applied.  The use of this technology may increase the risk of unintentional communication with other wells and the potential for acceleration of current reserves or an increase in recovery factor from the reservoir.  If drilling and completions results are less than anticipated, the production volumes may be lower than anticipated.

 

Encana may not realize anticipated benefits from acquisitions.

 

Encana has completed a number of acquisitions to strengthen its position and to create the opportunity to realize certain benefits, including, among other things, potential cost savings.  Achieving the benefits of acquisitions depends in part on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner, as well as being able to realize the anticipated growth opportunities and synergies from combining the acquired businesses and operations.  Acquisitions could also result in difficulties in being able to hire, train or retain qualified personnel to manage and operate such properties.

 

With respect to the Newfield acquisition, there can be no assurance that Encana will be able to successfully integrate Newfield’s assets or otherwise realize the expected benefits of the transaction. Difficulties in integrating Newfield into Encana may result in the combined company performing differently than expected, or in operational challenges or failures to realize anticipated efficiencies. Potential difficulties that may be encountered in the integration process include, among other factors: difficulties integrating the businesses of Newfield and Encana in a manner that permits Encana to achieve the full revenue and cost savings anticipated from the transaction; complexities associated with managing a larger and more complex business; difficulties realizing anticipated operating synergies; difficulties integrating personnel, vendors and business partners; loss of key employees; potential unknown liabilities and unforeseen expenses, delays or regulatory conditions; performance shortfalls at one or both of the companies as a result of the diversion of management’s attention to integration efforts; inconsistencies between each company’s standards, controls, policies and procedures; and the disruption of, or the loss of momentum in, each company’s ongoing business.

 

Encana has also incurred, and is expected to continue to incur, a number of costs associated with completing the Newfield acquisition and combining the businesses of Newfield and Encana. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the two companies, may not initially offset integration-related costs or achieve a net benefit in the near term, or at all.  

 

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Encana’s future success will depend, in part, on its ability to manage its expanded business by, among other things, integrating the assets, operations and personnel of Newfield and Encana in an efficient and timely manner; consolidating systems and management controls; and successfully integrating relationships with customers, vendors and business partners. Failure to successfully manage the combined company may have an adverse effect on Encana’s business, reputation, financial condition and results of operations.

 

Encana may be subject to additional risks from acquisitions.

 

Acquiring oil and natural gas properties requires the Company to assess reservoir and infrastructure characteristics, including estimated recoverable reserves, future production, commodity prices, revenues, development and operating costs and potential environmental and other liabilities.  Such assessments are inexact and inherently uncertain and, as such, the acquired properties may not produce as expected, may not have the anticipated reserves and may be subject to increased costs and liabilities.  

 

Although the acquired properties are reviewed prior to completion of an acquisition, such reviews are not capable of identifying all existing or potentially adverse conditions.  This risk may be magnified where the acquired properties are in geographic areas where the Company has not historically operated.  Further, the Company may not be able to obtain or realize upon contractual indemnities from the seller for liabilities created prior to an acquisition and it may be required to assume the risk of the physical condition of the properties that may not perform in accordance with its expectations.

 

As a result of the Newfield acquisition, Encana may also be exposed to additional risks or unknown or undisclosed liabilities to which it has not historically been exposed. Encana’s management may not be able to anticipate or effectively manage these additional risks, which could adversely impact Encana’s business, financial condition and results of operations.

 

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, oil and NGLs businesses are subject to environmental regulation pursuant to a variety of Canadian, U.S. and other federal, provincial, territorial, tribal, 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 availability and management of fresh, potable or brackish 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 as discussed below.

 

Climate Change - A number of federal, provincial and state governments have announced intentions to regulate greenhouse gases and certain air pollutants. These governments are currently developing regulatory and policy frameworks to deliver on their announcements. The Canadian federal government along with certain provinces and territories, including Alberta and British Columbia, have announced a pan-Canadian climate change framework that

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is consistent with the outcome reached at the 21st Conference of the Parties in Paris and which includes imposing an economy wide cost on carbon emissions in Canada by 2023. The Alberta government outlined its Climate Leadership Plan which includes four key areas, one of which is targeting a 45 percent reduction in methane gas emissions from oil and gas operations by 2025, to be achieved through equipment replacement and leak detection and repair regulations. Both Alberta and British Columbia have implemented a provincial carbon tax; Alberta introduced a carbon levy in January 2017 of C$20 per tonne of CO2e, which increased to C$30 per tonne of CO2e in 2018 while British Columbia has an established carbon levy of C$30 per tonne of CO2e, increasing by C$5 per tonne of CO2e per year starting April 1, 2018 until it reaches C$50 per tonne of CO2e in 2021. In October of 2018, the United States Environmental Protection Agency (“EPA”) issued a reconsideration reforming the rules that regulate methane emissions from the oil and gas industry. Public comment on the proposed revised regulations closed in December 2018 and the new regulations are expected to be finalized in 2019. Encana’s cost of complying with emerging climate and cost of carbon regulations is not currently forecast to be material to the Company, however as these and additional federal and regional programs are in their early implementation stage or under development, Encana is unable to predict the total future impact of the potential regulations upon its business. Therefore, it is possible that the Company could face future increases in operating costs in order to comply with legislation governing emissions. Further, certain local governments, stakeholders and other groups have made claims against companies in the oil and gas industry, including the Company, relating to the purported causes and impact of climate change. These claims have, among other things, resulted in litigation, shareholder proposals and local ballot initiatives targeted against certain companies and the oil and gas industry generally. As these claims are in their early stages, the Company is unable to assess the impact of such claims on its business, but the defense of such matters may be costly and time consuming and could have a material adverse effect on the Company’s reputation.

 

Hydraulic Fracturing - The U.S. and Canadian federal governments and certain U.S. state and Canadian provincial governments continue to review certain aspects of the scientific, regulatory and policy framework under which hydraulic fracturing operations are conducted. 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 continue to suggest 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.

 

Further, certain governments in jurisdictions where the Company does not currently operate have considered or implemented moratoriums 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 delays, 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 and oil that the Company is ultimately able to produce from its reserves. The Company recognizes that additional hydraulic fracturing ballot initiatives and/or local rule-making limiting or restricting oil and gas development activities are a possibility in the future.

 

As these federal and regional programs are in their early implementation stage or 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 hydraulic fracturing.

 

Seismic Activity – Some areas of North America are experiencing increasing localized frequency of seismic activity which has been associated with oil and gas operations. Although the occurrence and risk of seismicity in relation to oil and gas operations is generally very low, it has been linked to deep disposal of wastewater and has been correlated with hydraulic fracturing activities which has prompted legislative and regulatory initiatives intended to address these concerns.  These initiatives have the potential to require additional monitoring, restrict the injection of produced water in certain disposal wells and/or modify or curtail hydraulic fracturing operations which could lead to operational delays, increase compliance costs or otherwise adversely impact the Company’s operations.

 

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Encana’s risk management activities may prevent the Company from fully benefiting from price increases and expose us to other risks.

 

The nature of the Company’s operations results in exposure to fluctuations in commodity prices and foreign currency exchange rates. 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, oil or NGLs prices and fluctuations in foreign currency exchange rates.

 

Under U.S. GAAP, derivative financial 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 risk management agreements and the amount of estimated production hedged 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 risk management agreements fail to fulfill their obligations under the agreements, particularly during periods of declining commodity prices.

 

Downgrades in Encana’s credit ratings 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. One of the Company’s credit ratings is below an investment-grade credit rating. There can be no assurance that the Company’s other credit ratings will not also be downgraded, including below an investment-grade credit rating.

 

The Company’s borrowing costs and ability to raise funds are directly impacted by its credit ratings. A downgrade may increase the cost of borrowing under the Company’s existing credit facilities, limit access to private and public markets to raise short-term and long-term debt, and negatively impact the Company’s cost of capital. Further, as a result of one of the Company’s credit ratings being below investment grade, access to the Company’s U.S. commercial paper program has been eliminated.

 

Credit ratings may also be important to suppliers or counterparties when they seek to engage in certain transactions. Downgrades in one or more of the Company’s credit ratings below investment-grade may require the Company to post collateral, letters of credit, cash or other forms of security as financial assurance of the Company’s performance under certain contractual arrangements with marketing counterparties, facility construction contracts, and pipeline and midstream service providers. Additionally, certain of these arrangements contain financial assurance language that may, under certain circumstances, permit the Company’s counterparties to request additional collateral.

 

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 based on 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.  

 

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

 

As at December 31, 2018, the Company had total long-term debt of $4,198 million and 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.

 

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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 or NGLs 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. Further, future acquisitions may decrease the Company’s liquidity by using a significant portion of its available cash or borrowing capacity to finance such acquisitions, and such acquisitions could result in a significant increase in the Company’s interest expense or financial leverage if it incurs additional debt to finance such acquisitions.

 

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

 

The Company’s business is subject to 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, loss of well control, surface spills and uncontrolled ground releases of fluids during hydraulic fracturing or other similar activities, and 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 and other natural disasters, spills and migration of hazardous chemicals, 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 is dependent on partners to fund development projects conducted through joint ventures and partnerships, which if such funding is unavailable may adversely affect the Company’s operations and financial condition.

 

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, suspend or terminate such arrangements 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

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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. Further, Encana is involved from time to time in disputes with its partners and, as such, it may be unable to dispose of assets or interests in certain arrangements if such disputes cannot be resolved in a satisfactory or timely manner.

 

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

 

The Company may identify certain assets for disposition, 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 the Board of Directors, associated asset retirement obligations, due diligence, favourable market conditions, the assignability of joint venture, partnership or other arrangements and stock exchange, regulatory and third party approvals. These factors may also reduce the proceeds or value to Encana.

 

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 decision to pay dividends and the amount of such dividends is subject to the discretion of the 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 vary from time to time and could be increased, 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 Report on Form 10-K.

 

The decision whether or not to pay dividends and the amount of any such dividends are subject to the discretion of the 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.

 

Changes to existing regulations related to income tax laws, royalty regimes, environmental laws or other regulations could adversely affect the Company’s business, financial position, cash flows or results of operations.

 

Income tax laws, including recent U.S. tax reform and potential U.S. Treasury Department regulations and guidance, royalty regimes, environmental laws or other laws and regulations, and free trade agreements may change or be 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.

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Encana does not operate all of its properties and assets and has limited control over factors that could adversely affect the Company’s financial performance.

 

Other companies operate a portion of the assets in which Encana has ownership interests. Encana may have limited ability to exercise influence over operation 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 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.

 

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. Although Encana’s financial results are consolidated in Canadian dollars, the Company reports its financial results in U.S. dollars. As Encana operates in both Canada and the U.S., many of the Company’s expenses are incurred outside of the U.S. and are denominated in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could impact the Company’s revenue and expenses and have an adverse effect on the Company’s financial performance and condition.

 

In addition, the Company has 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 inability of our customers and other contractual counterparties to satisfy their obligations to us may have a material adverse effect on us.

 

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.

 

The Company is subject to claims, litigation, administrative proceedings and regulatory actions that may not be resolved in the Company’s favour.

 

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, monetary damages or the inability to engage in certain operations or transactions. 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 Item 3 of this Annual Report on Form 10-K.

 

Encana relies on certain key personnel, and if the Company is unable to attract and retain key personnel necessary for its business, Encana’s operations may be negatively impacted.

 

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 unexpected 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 means there can be no

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assurance that the Company will be able to attract and retain such personnel with the required specialized skills necessary for its business.

 

Encana has certain indemnification obligations to certain counterparties that could have a material adverse effect on Encana.

 

Encana has agreed to indemnify or be indemnified by numerous counterparties for certain liabilities and obligations associated with businesses or assets retained or transferred by the Company. Specifically, in relation to a corporate reorganization to split into two independent publicly traded energy companies, Encana and Cenovus Energy Inc. (“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 also has indemnification obligations under certain acquisition and divestiture activities it has undertaken.

 

Encana cannot determine whether it will be required to indemnify certain counterparties for any substantial obligations. Encana also cannot be assured that, if a counterparty is required to indemnify Encana and its affiliates for any substantial obligations, such counterparties will be able to satisfy such obligations. Any indemnification claims against Encana pursuant to the provisions of the transaction agreements could have a material adverse effect on Encana.

 

The Company could be adversely affected by security threats, including cyber-security threats and related disruptions.

 

The Company has become increasingly dependent upon information technology systems to conduct daily operations. The Company depends on various information technology systems to estimate reserve quantities, process and record financial and operating data, analyze seismic and drilling information, and communicate with employees and third-party partners. This growing dependence on technology is accompanied by greater sensitivity to cyber-attacks and information systems breaches. Unauthorized access to information systems by employees or third parties could lead to corruption or exposure of confidential, fiduciary or proprietary information, interruption to communications or operations or disruption to the Company’s business activities or its competitive position. In addition, the Company’s vendors, suppliers and other business partners may separately suffer disruptions as a result of such security breaches. The potential for such occurrences subjects the Company’s operations to increased risks that could have a material adverse effect on the Company’s business, financial condition and results of operations. To protect its information assets and systems, the Company applies technical and process controls, which are reviewed by the appropriate senior management with oversight from the Company’s Board of Directors. These controls are in line with industry standards and are reviewed annually with peer companies in order to guide Encana’s focus on information security initiatives. However, these controls may not adequately prevent cyber-security breaches.

 

There is no assurance that the Company will not suffer losses associated with cyber-security breaches in the future. As cyber-attacks continue to evolve, the Company may be required to expend additional resources to investigate, mitigate and remediate any potential vulnerabilities. The Company may also be subject to regulatory investigations or litigation relating to cyber-security issues.

 

The Company’s operations may be affected by aboriginal treaty, title and other rights.

 

Aboriginal peoples have claimed aboriginal treaty, title and other rights in respect of areas within Canada and the United States. The Company is not aware of any material claims that have been made in respect of its properties or assets; however, the legal basis of an aboriginal land claim is a matter of considerable legal complexity and the impact of the assertion of such a claim, or the possible effect of a settlement of such claim, upon the Company cannot be predicted with any degree of certainty. In addition, no assurance can be given that any recognition of aboriginal rights or claims whether by way of a negotiated settlement or by judicial pronouncement (or through the grant of an injunction prohibiting exploration or development activities pending resolution of any such claim) would not delay or even prevent the Company’s exploration and development activities. If a material claim were to arise and be successful, such claim could have a material and adverse effect on the Company’s business, financial condition and results of operations. In addition, the process of addressing such claim, regardless of the outcome,

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could be expensive and time consuming and could result in delays which could have a material and adverse effect on the Company’s business, financial condition and results of operations.

 

In addition to the foregoing, the Company may become subject to various laws and regulations that apply to operators and other parties operating within the boundaries of Native American reservations in the United States. These laws and regulations may result in the imposition of certain fees, taxes, environmental standards, lease conditions or requirements to employ specified contractors or service providers. Any one of these requirements, or any delay in obtaining the approvals or permits necessary to operate within the boundaries of Native American tribal lands, could adversely impact the Company’s operations and ability to explore and develop new properties.

 

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

 

Certain 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 such exploration or development projects.

 

Encana is also exposed to risks in connection with certain property interests and production operations in China that were acquired by Encana pursuant to the Newfield acquisition. These risks may include: difficulties obtaining permits or governmental approvals as a foreign operator; currency restrictions, exchange rate fluctuations, or other activities that disrupt markets and restrict the movement of funds; loss of revenue, property and equipment as a result of expropriation, nationalization, war, piracy, acts of terrorism, insurrection, civil unrest and other political risks; disruptions in international oil cargo shipping activities; taxation policies, including increases in taxes and governmental royalties, retroactive tax claims and investment restrictions; physical, digital, internal and external security breaches; forced renegotiation of, unilateral changes to, or termination of contracts with, governmental entities and quasi-governmental agencies; changes in laws and policies governing operations in China; difficulties enforcing rights against a governmental entity due to the doctrine of sovereign immunity; and changes to laws and policies of the United States affecting foreign trade, taxation, investment and transparency matters. Realization of any of the foregoing risks could adversely affect the Company’s business and results of operations.

 

 

 

37

 


 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 3. Legal Proceedings

 

Encana is involved in various legal claims and actions arising in the normal course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, 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 impact on the Company’s consolidated net earnings or loss for the period in which the effect becomes reasonably estimable. See Item 1A. Risk Factors, “The Company is subject to claims, litigation, administrative proceedings and regulatory actions that may not be resolved in the Company’s favour.” of this Annual Report on Form 10-K.

For additional information, see Note 25 of Encana’s audited Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

 

Not applicable.

38

 


 

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

On February 26, 2018, the Company announced that it had received approval from the TSX to purchase, for cancellation, up to 35 million Encana common shares pursuant to a NCIB over the 12-month period beginning February 28, 2018 and ending February 27, 2019. For the twelve months ended December 31, 2018, the Company purchased approximately 20.7 million common shares for total consideration of approximately $250 million.

 

On February 13, 2019, the Company confirmed it will proceed with its previously announced plans to spend up to $1.25 billion to purchase common shares, for cancellation, subject to the receipt of regulatory approvals. On February 27, 2019, the TSX accepted the Company’s notice of intention to commence a NCIB for up to approximately 149.4 million Encana common shares, beginning March 4, 2019 and ending March 3, 2020.

 

MARKET INFORMATION, SHAREHOLDERS, AND DIVIDEND INFORMATION

 

Market Information

 

Encana’s common shares are listed and posted for trading on the TSX and NYSE under the symbol “ECA”.

 

Holders

 

The Company is authorized to issue an unlimited number of common shares and Class A Preferred Shares limited to a number equal to not more than 20 percent of the issued and outstanding number of common shares at the time of the issuance. As at February 25, 2019, there were 1,495,871,408 common shares outstanding held by 25,686 shareholders of record, and no Class A Preferred Shares outstanding.

 

Dividend Information

 

In 2018, Encana paid a quarterly dividend of US$0.015 per share (US$0.06 per share annually). In 2017, Encana paid a quarterly dividend of US$0.015 per share (US$0.06 per share annually). On February 27, 2019 the Board of Directors declared a dividend of US$0.01875 per share payable on March 29, 2019.

 

Dividend payments are not guaranteed and the amount of cash to be distributed as dividends in the future may change. Any decision to pay dividends will be determined at the discretion of the Board of Directors after consideration of numerous factors including: (i) the earnings of the Company; (ii) financial requirements for the Company’s operations; (iii) the satisfaction by the Company of liquidity and solvency tests described in the CBCA; and (iv) any agreements relating to the Company’s indebtedness that restrict the declaration and payment of dividends. See Item 1A. Risk Factors of this Annual Report on Form 10-K, “The decision to pay dividends and the amount of such dividends is subject to the discretion of the Board of Directors based on numerous factors and may vary from time to time”. The Company currently pays dividends quarterly to shareholders of record as of the 15th day (or the previous business day) of the last month of each calendar quarter, with the last business day of the same month being the corresponding payment date. The dividends paid on the common shares are expected to be designated as “eligible dividends” for Canadian income tax purposes, unless otherwise notified.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

Information concerning securities authorized for issuance under equity compensation plans is set forth in the Proxy Statement relating to the Company’s 2019 annual meeting of shareholders, which is incorporated herein by reference.

 

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS

 

None.

 

39

 


 

RECENT SALES OF UNREGISTERED EQUITY SECURITIES

 

None.

 

PERFORMANCE GRAPH

 

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

 

The following graph compares the cumulative five-year total return to shareholders of Encana’s common shares relative to the cumulative total returns of the S&P/TSX Composite Index and a peer group of 10 comparable companies operating in the same industry as the Company on December 31 for each of the years indicated. The companies included in the peer group are Antero Resources Corporation; Cabot Oil & Gas Corporation; Chesapeake Energy Corporation; Crescent Point Energy Corporation; Enerplus Corporation; Devon Energy Corporation; Obsidian Energy Ltd.; Pengrowth Energy Corporation; Range Resources Corporation; Southwestern Energy Company. The graph was prepared assuming $100 was invested on December 31, 2013 in Encana’s common shares, the S&P 500, the S&P/TSX Composite Index and the peer groups, and dividends have been reinvested subsequent to the initial investment. The graph is included for historical comparative purposes only and should not be considered indicative of future share performance.

 

40

 


 

Comparison of 5-Year Cumulative Total Return Among

Encana Corporation, the S&P 500, the S&P/TSX Composite Index and a Peer Group

 

 

Fiscal Year Ended December 31

2013

2014

2015

2016

2017

2018

Encana

$   100.00

$     78.00

$     30.00

$     69.00

$     79.00

$     34.00

Peer Group

100.00

65.00

28.00

43.00

35.00

22.00

S&P 500

100.00

114.00

115.00

129.00

157.00

150.00

S&P/TSX Composite Index

100.00

111.00

101.00

123.00

134.00

122.00

 

 

41

 


 

Item 6: Selected Financial Data


The following table sets forth selected financial data of the Company and its consolidated subsidiaries over the five-year period ended December 31, 2018, which has been derived from the Company’s audited Consolidated Financial Statements. The financial information below should be read in conjunction with Item 7 and Item 8 of this Annual Report on Form 10-K.

 

Year Ended December 31 (US$ millions, unless otherwise specified)

2018

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Earnings Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

5,939

 

 

 

4,443

 

 

 

2,918

 

 

 

4,422

 

 

 

8,019

 

Impairments

 

-

 

 

 

-

 

 

 

1,396

 

 

 

6,473

 

 

 

-

 

Operating Income (Loss) (1)

 

1,694

 

 

 

1,068

 

 

 

(1,881

)

 

 

(6,298

)

 

 

2,330

 

Gain (Loss) on Divestitures, Net

 

5

 

 

 

404

 

 

 

390

 

 

 

14

 

 

 

3,426

 

Net Earnings (Loss) Attributable to Common Shareholders

 

1,069

 

 

 

827

 

 

 

(944

)

 

 

(5,165

)

 

 

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Earnings (Loss) per Common Share Basic & Diluted

 

1.11

 

 

 

0.85

 

 

 

(1.07

)

 

 

(6.28

)

 

 

4.58

 

Dividends Declared per Common Share

 

0.06

 

 

 

0.06

 

 

 

0.06

 

 

 

0.28

 

 

 

0.28

 

Weighted Average Common Shares Outstanding Basic & Diluted (millions)

 

959.8

 

 

 

973.1

 

 

 

882.6

 

 

 

822.1

 

 

 

741.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

1,058

 

 

 

719

 

 

 

834

 

 

 

271

 

 

 

338

 

Total Assets

 

15,344

 

 

 

15,267

 

 

 

14,653

 

 

 

15,614

 

 

 

24,492

 

Capital Lease Obligations and The Bow Office Building

 

1,435

 

 

 

1,639

 

 

 

1,570

 

 

 

1,591

 

 

 

1,959

 

Long-Term Debt, Including Current Portion

 

4,198

 

 

 

4,197

 

 

 

4,198

 

 

 

5,333

 

 

 

7,301

 

Total Shareholders’ Equity

 

7,447

 

 

 

6,728

 

 

 

6,126

 

 

 

6,167

 

 

 

9,685

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash From (Used In) Operating Activities

 

2,300

 

 

 

1,050

 

 

 

625

 

 

 

1,681

 

 

 

2,667

 

Non-GAAP Cash Flow (2)

 

2,115

 

 

 

1,343

 

 

 

838

 

 

 

1,430

 

 

 

2,934

 

Capital Expenditures

 

1,975

 

 

 

1,796

 

 

 

1,132

 

 

 

2,232

 

 

 

2,526

 

Net Acquisitions & (Divestitures)

 

(476

)

 

 

(682

)

 

 

(1,052

)

 

 

(1,838

)

 

 

(1,329

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Rates (US$ per C$1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

0.772

 

 

0.771

 

 

0.755

 

 

0.782

 

 

0.905

 

Period End

 

0.733

 

 

0.797

 

 

0.745

 

 

0.723

 

 

0.862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production Volumes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil (Mbbls/d)

 

89.9

 

 

 

76.3

 

 

 

73.7

 

 

 

87.0

 

 

 

49.4

 

Total NGLs (Mbbls/d) (3)

 

78.2

 

 

 

52.8

 

 

 

48.4