Encana’s 10-year production plan for Montney
In 1Q16, Encana’s Montney assets produced ~826 MMcf (million cubic feet) per day of natural gas and ~22,300 barrels per day of liquids. This is ~54% of Encana’s total natural gas production and ~17% of Encana’s total liquids production.
The above graph shows Encana’s production plan for the Montney Resource Play over the next ten years. These ten years represent only about 1,000 wells from the inventory of ~10,000 wells. By the end of 2018, Encana expects Montney to produce ~1 Bcf (billion cubic feet) per day of natural gas and ~50,000 barrels of liquids. By the end of 2026, Encana expects Montney to produce ~1.7 Bcf per day of natural gas and ~75,000 barrels of liquids.
Encana’s Montney infrastructure plan
In Montney, Encana is currently facing a bottleneck on natural gas processing and compression facilities. It’s using all the available ~1 Bcf per day of gas processing capacity. To deal with the situation, Encana is building three facilities in Montney that will have a combined total processing capacity of ~800 MMcf per day. These facilities, which are in the construction phase, are situated on the Montney natural gas fields. Encana’s total capital expenditure for these plants will be around $1.3 billion. Two of these facilities are scheduled to be completed in 4Q17 and one in 1Q18.
Encana’s Montney cash flow estimates
Encana expects Montney to be cash flow positive every year, at $50 per barrel of WTI (West Texas Intermediate) crude oil and $3 per mmBtu (million British thermal units) of NYMEX (New York Mercantile Exchange) natural gas. By the end of the decade, Encana expects Montney to produce ~$700 million of free cash flow.
Let’s look now at the 1Q16 free cash flows of other natural gas producers from the SPDR S&P 500 (SPY) and the SPDR S&P MidCap 400 (MDY). Southwestern Energy (SWN), Range Resources (RRC), and Consol Energy (CNX) reported free cash flows of -$104 million, -$20 million, and ~$49 million, respectively. For 1Q16, NYMEX natural gas prices averaged around $1.98 per mmBtu.
In the next part of this series, we’ll see how Wall Street has reacted to Encana’s presentation on the Montney Resource Play.