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Analyzing Encana’s Realized Price Effectiveness

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What is realized price effectiveness?

Realized price effectiveness is defined as the excess or shortfall of the realized price to the cost item, scaled by cost item. In other words, realized price effectiveness tells us how much higher or lower a company’s realized price when compared with its production costs.

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ECA’s realized price

For 4Q16, Encana’s realized price excluding hedging profit was $23.81 per boe (barrel of oil equivalent), which is much better than its price of $19.44 per barrel in 4Q15. ECA’s realized price is calculated by scaling ECA’s oil and gas revenue by total production.

Cash cost

Encana’s (ECA) production cash cost has increased on a year-over-year basis. For 4Q16, Encana’s production cash cost was $17.92 per boe, higher than $17.74 per boe in 4Q15.

ECA’s production cash cost includes production operating expenses, production and ad valorem taxes, transportation and processing expenses, G&A (general and administration) cash expenses, and interest cash expenses.

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Total production cost

Encana’s total production cost has also increased on a year-over-year basis. For 4Q16, Encana’s total production cost was $24.14 per barrel, higher than $25.12 per barrel in 4Q15.

ECA’s total production cost includes production cash cost plus DD&A (depletion, depreciation, and amortization) expenses.

Realized price effectiveness

For 4Q16, Encana (ECA) reported positive realized price effectiveness in terms of cash cost. However, Encana’s realized price effectiveness in terms of total production cost was negative. Among the other upstream companies, Murphy Oil (MUR) and Range Resources (RRC) reported negative 4Q16 realized price effectiveness in terms of total production cost.

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