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Encana’s Production Profile: Will It Benefit from Higher Capex?

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Capital program guidance

For 2017, Encana’s (ECA) capital spending program will be $1.6 billion–$1.8 billion. That represents a midpoint rise of ~55.0% compared to capex (capital expenditure) of ~$1.1 billion in 2016. Its capex in 2017 will be funded by cash flow and cash on hand.

Most of ECA’s capital will be allocated to its four core assets. Permian will receive the most capital, followed by Eagle Ford, Montney, and Duvernay. In 2016, Encana allocated 97.0% of its 2016 capital to these four assets.

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How Encana’s production profile will emerge with higher capex

Despite higher capex for fiscal 2017, Encana expects its total production (USO) (SCO) (UNG) to fall. That’s because it expects to see the benefits of higher spending in the second half of 2017.

ECA expects quarterly production growth to begin in 3Q17. So for 2017, it expects total production of 320–330 Mboepd (thousand barrels of oil equivalent per day). That represents a midpoint fall of ~8.0% from 2016 production. As for its core assets, Encana expects a production growth of ~20.0% from 4Q16 to 4Q17.

Margin benefits

As we’ve already seen, ECA’s 2017 capex will focus on production from oil and its condensate-rich assets. It expects 35.0% growth in its oil and condensate production from 4Q16 to 4Q17. That could help ECA double its corporate margin from ~$6.50 per boe (barrel of oil equivalent) in 2016 to ~$13 per boe in 2018.

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