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Could Encana See Production Growth in 2017?

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Production guidance

Encana (ECA) did not give any specific production guidance for 1Q17. However, during its 4Q16 earnings conference call, it gave fiscal 2017 production guidance. For 2017, Encana expects total production of 320 Mboepd[1.thousand barrels of oil equivalent per day]–330 Mboepd, which represents a midpoint decrease of ~8% from 2016. Encana expects to return to sequential production growth in 3Q17.

For 2017, Encana expects natural gas production of 1,150 MMcf[2.million cubic feet]–1,200 MMcf per day, and liquid production of 125 MMbpd[3.million barrels per day]–130 MMbpd.

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Core assets

For its core assets, Encana expects production growth of ~20% between 4Q16 and 4Q17. Encana’s core assets are expected to generate ~78% of its 2017 production. Encana’s core assets are in the Eagle Ford Shale, the Permian Basin, and the Montney and Duvernay formations in Canada.

EP Energy (EPE), Diamondback Energy (FANG), Energen (EGN), Approach Resources (AREX), and Clayton William Energy (CWEI), which also operate in the Permian Basin, also have a high percentage of crude oil in their production mix. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) invests at least 80% of its total assets in oil and gas exploration companies.

4Q16 production

Encana’s 4Q16 production was ~5% lower than its 3Q16 production, and ~21% lower than its 4Q15 production. Encana’s year-over-year decline in production can be attributed to its reduced capital investments and divestitures in the last year.

Capital program guidance

In 2017, Encana will have a capital program of $1.6 billion–$1.8 billion, which represents a midpoint increase of ~55% from the capital expenditure of ~$1.1 billion in 2016. Encana’s capital program in 2017 will be funded by its cash flow and cash on hand. In the next part, we’ll take a look at Encana’s Montney plans.

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