Encana CEO: Third Quarter Was ‘Anything But Boring’

High-intensity completions are contributing to higher oil production in the Anadarko Basin, where Encana Corp.’s cube development model is bringing down well costs and improving cycle times, executives said Oct. 31.

The company said third-quarter 2019 production in the Anadarko Basin, home of the Scoop/Stack plays, increased to an average 162,000 barrels of oil equivalent per day (boe/d). Further, Stack pacesetter well costs dropped to less than $6 million and cycle times fell to 90 days.

“In the Anadarko, we see strong year-over-year growth in oil and liquids, up 16% when compared to the same period in 2018,” Encana President Mike McAllister told analysts on an earnings call. “The story here is really pretty simple. Production results are consistent, and the team continues to find operational efficiencies to reduce costs and cycle times.”

Shale players in North America have been trying to win back investors fed up with years of dismal returns amid continued market volatility. In a drive to grow earnings and please shareholders, oil and gas companies have worked to become more efficient in the oil patch, spend less, pay down debt and increase free cash flow.

Encana remains focused on the black oil window in the Stack Meramec, among other areas, where it holds a contiguous acreage position. More than 90% of its 2019 Anadarko program is focused in Kingfisher, Blaine and Canadian counties in Oklahoma. To date, the company has pumped 40 high-intensity cube style completions, and the results have exceeded type curve expectations at 180 days from initial production, McAllister said.

Hopes are to further reduce costs. Whether completion design changes in the Stack eventually lead to more cost reductions via more production growth remain to be seen.

“They do add costs compared to that $7.9 [million] number,” CEO Doug Suttles told analysts, referring to average 2018 drilling and completion (D&C) cost per well in the Anadarko. He added, “what we’re looking to see, though, is if we spend a bit more money on the completion does it make a better well and therefore generate better returns, which will improve capital efficiency at the same time. … A lot of the cost in this industry are paid for on a [daily] basis. So, if you can actually do things more efficiently and quicker, it’s less expensive.”

D&C cost per well in the Anadarko Basin fell by $1.4 million to $6.5 million during the quarter.

Encana aims to bring down its D&C cost per Anadarko well to less than $6 million, McAllister added. “But offsetting that is we’re testing higher intensity completions up to 3,000 pounds per foot and looking at those results. It’s a bit of a balance of more intense completions.”

The company’s cube development configuration comprises six to eight wells per section.

Also contributing to improved performance in the Anadarko is base optimization in areas such as artificial lift use and managing line pressure, Suttles added.

Expectations for continued outperformance, primarily in the Anadarko Basin, prompted the company to raise its full-year production guidance to between 580,000 boe/d and 590,000 boe/d.

Encana’s total production for third-quarter 2019 rose 4% year-over-year to 605,100 boe/d driven by performances in the Anadarko and Permian basins. Strong results in the Permian Basin’s Howard County helped push Permian production up by 13% to 111,000 boe/d with a four-rig program. Although, McAllister noted that most of Encana’s Permian activity is focused in Midland, Martin and Upton counties.

“Howard County represents about 25% of our program this year. … We haven’t finalized the budget yet for 2020,” he said. “The real surprise and really encouraging results we’re seeing is coming out of the Wolfcamp A in Howard, and it’s basically well above our type curve expectations.”

Of the company’s base assets, notable highlights include Williston infill well outperformance.

Previously, “we had 1,300-1,320-ft interwell spacing and we’re finally putting a well in between,” McAllister said. “So, we’re going down to 660 ft and actually even testing tighter than that.”

Changes also included larger completions using up to 700 lbs per ft, resulting in improved parent well performance. “In fact, we’re also seeing enhancement in the offset parent wells—basically improving production after they’re frac hit by the child well,” he added. “Things are really encouraging in the Williston Basin, and we’re pretty excited about some of the well results for seeing.”

The updates were given after Encana reported on Oct.31 net income for the third quarter jumped to $149 million, up from $39 million a year earlier. In addition, the company’s operating profit increased, moving to $195 million from $163 million.

In another release, the company announced it will become Ovintiv Inc. and establish corporate domicile in the U.S.

The news came almost a year after the company agreed to buy Texas-based Newfield Exploration Co. for $5.5 billion, growing its assets in the U.S. where it also holds positions in the Uinta Basin and Eagle Ford Shale.

“From today’s news, you can see it was anything but boring,” Suttles said, referring to a sell-side note he said was titled “Likely A Boring Quarter for Encana.” “We generated a quarter of a billion dollars of free cash flow, executed exceptionally well across the company and announced a strategic move to establish corporate domicile in the United States that we believe will create long-term value as it ultimately better positions our company.

“Our recent actions are proof positive that we are committed to unlocking this significant value we see in our equity,” Suttles added. “We will leave no stone unturned to capture this value for the benefit of our shareholders.”

Analysts deemed the results solid.

“ECA released a positive operations update, with its Stack cube wells (40) continuing to outperform the 2019 type curve on average after ~170 days on a cumulative oil basis,” Barclays analysts said in a note. “While some investors discount 30-, 60-, and 90-day well performance as too early-stage, 180 days carries significantly more weight with the market and with the Stack bull/bear thesis.”