Encana’s hedging advantage
In 1Q16, natural gas hedging activities increased Encana’s (ECA) average realized natural gas price by $0.45 per Mcf (thousand cubic feet).
As we saw in the previous part of this series, excluding hedges, the 1Q16 average realized price of ECA’s natural gas production was $1.73 per barrel. This means that commodity hedging activities increased ECA’s average realized natural gas price by ~26%.
Per ECA’s 1Q16 interim report, revenues from oil, natural gas, and natural gas liquids sales totaled $753 million in 1Q16. Cash settlements related to oil and natural gas hedges increased its revenue by more than $171 million in the quarter.
Encana’s 2016 hedges
For 1Q16, 2Q16, 3Q16, and 4Q16, Encana has fixed price swaps on natural gas for 889 MMcf (million cubic feet) per day at a weighted average price of $2.67 per MMcf.
For 1Q16, 2Q16, 3Q16, and 4Q16, Encana has variable price hedges (two-way collars) on NYMEX natural gas for 335 MMcf per day. As of May 18, 2016, for the NYMEX natural gas price of $2.00 per mmBtu, these variable price hedges would result in realized prices of $2.22 per Mcf.
Overall, as of April 26, 2016, Encana had derivative coverage for ~85% of its forecast natural gas production for 2016.
Encana’s production costs
In 1Q16, ECA’s production costs, which include LOE (lease operating expense), transportation, processing expenses, and production taxes were $12.24 per boe (barrel of oil equivalent), ~8% lower than in 1Q15. In 1Q16, ECA’s operating expenses were ~$4.56 per boe, ~17% higher than its operating expenses of ~$3.87 per boe in 1Q15.