How Encana Plans to Widen Its Corporate Margin in 2017



Margin growth

By year-end 2017, Encana (ECA) plans to increase its corporate margin to more than $10 per boe (barrel of oil equivalent) from year-end 2016’s corporate margin of ~$6.4 per boe. The main drivers for ECA’s margin growth will be increased liquids production and increased total production from core four plays (see Part 3 of this series).

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Liquids production

Per Encana’s 4Q16 earnings presentations, it’s planning to achieve more than 35% growth in its oil and condensate production from 4Q16 to 4Q17. In order to achieve this growth, ECA’s 2017 capital program will focus on production from oil- and condensate-rich assets.

In 4Q16, ECA reported crude oil (USO) production of 66.4 Mboepd (thousand barrels of oil equivalent per day) and condensate production of 19.9 Mboepd.

Why a higher liquids percentage is preferable for upstream companies

Typically, higher liquids production results in better operating margins. Encana’s peers Marathon Oil (MRO), ConocoPhillips (COP), and PDC Energy (PDCE) have ~67%, ~60%, and ~63% liquids in their production mixes, respectively.

Next, we’ll take a look at ECA’s cash flows.


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