EnCana
acquires Cutbank Ridge acreage
Posted: 23 September 2003
EnCana recently completed the acquisition of about 500,000 net
acres (about 780 sections) of prospective natural gas development
lands in the Canadian Rocky Mountain foothills.
In this major new resource play — called Cutbank Ridge —
the company estimates that it will ultimately recover more than
4 trillion cubic feet (Tcf) of natural gas. Over the past year,
EnCana has invested about $500 million in exploration drilling and
land sales to capture Cutbank Ridge, which spans the British Columbia-Alberta
border.
The resource-play character of these lands is expected to yield
steady, profitable, long-life production growth.
"Our extensive seismic surveys, geological analysis and exploratory
drilling have identified another promising resource play in the
deep basin. Cutbank Ridge (Cadomin geological formation) is similar
to our attractive gas development projects in Greater Sierra (Jean
Marie formation) in northeast B.C. and Mamm Creek (Mesa Verde formation)
in the U.S. Rockies. These resource plays are characterized by large
areal extent and we believe they hold multiple TCFs of recoverable
natural gas.We have successfully demonstrated that our application
of technology and large repeatable drilling programs can drive down
development costs in these resource plays to achieve attractive
financial returns. Typical of EnCana's other large resource plays,
Cutbank Ridge has potential of several hundred million cubic feet
per day of long-life gas production," said Randy Eresman, EnCana's
Chief Operating Officer.
Cutbank Ridge further enhances EnCana's identifiable, long-term,
low-risk growth profile. We currently have about 100 rigs running
company-wide and plan to drill 2,500 gas wells in the last half
of 2003. Excluding the Cutbank Ridge acquisition, we are forecasting
a 2003 gas sales exit rate of between 3.2 billion and 3.3 billion
cubic feet per day, lifting average annual sales to achieve EnCana's
full-year target of 3.0 billion to 3.1 billion cubic feet per day,"
Eresman said.
For the past 18 months, EnCana has been assembling the lands covering
the Cutbank Ridge play. The final steps in this multi-phase acquisition
were recently concluded at provincial land sales in B.C. and Alberta
where EnCana invested $369 million to purchase a majority interest
in 39 parcels totalling about 350,000 net acres. EnCana previously
acquired about 150,000 net acres through purchases, land swaps with
other companies and Crown land sales. EnCana's total Cutbank Ridge
lands, centred about 50 kilometres southwest of Dawson Creek, B.C.,
are about 500,000 net acres.
"Cutbank Ridge is a classic resource play; the natural gas
is contained in continuous tight sandstone reservoirs; the play
was extensively delineated by previous industry drilling; the application
of technological advances in drilling and completion techniques
have now made the play economically viable; and the reservoir characteristics
support long-term predictable gas production growth.
In the Cutbank Ridge play, single sections are estimated, on average,
to contain more than 6 billion cubic feet of recoverable natural
gas, based on two horizontal wells per section. Horizontal wells
are initially expected to cost about $4 million which includes drilling,
completion, tying into sales pipelines and facility costs. We estimate
full-cycle finding and development costs of approximately $1.50
per thousand cubic feet of gas," Eresman said.
In the exploration phase of this acquisition, EnCana examined the
well logs from more than 300 previously-drilled wells in this region
and drilled about 25 wells to establish production profiles.
The Cadomin formation is about 8,000 feet deep and 100 feet thick.
First-year production rates on each well are expected to average
1 million to 2 million cubic feet of gas per day.
Tight gas resource plays are typically characterized by fairly
steep first-year decline rates, followed by much shallower decline
rates that average less than 15 per cent per year for years thereafter.
EnCana's preliminary Cutbank Ridge development plan contemplates
drilling 100 to 200 wells per year.
"This year, we have substantially stepped up investment in
B.C. from $700 million to over $1 billion, which is a clear endorsement
of the progressive steps taken by the B.C. government to provide
the conditions required to attract these huge capital commitments.
In Greater Sierra, we have increased our summer drilling to 80 wells
- double our initial plan," said Mike Graham, President of
EnCana's Canadian Foothills & Frontier Region. "We applaud
the government for improving the investment climate through targeted
royalties, upgrading of roads, the adoption of summer drilling incentives,
enhanced tax competitiveness and streamlined regulatory processes.
We look forward to a continuation of B.C.'s Oil and Gas Development
Strategy."
Sales targets for 2003 and 2004 confirmed
EnCana is on track to achieve a 10 percent increase in conventional
sales per share from pro forma levels in 2002. Oil, natural gas
and natural gas liquids sales this year are forecast to average
between 740,000 and 797,000 barrels of oil equivalent per day, which
is comprised of between 3 billion and 3.1 billion cubic feet of
gas per day and 240,000 and 280,000 barrels of oil and NGLs per
day.
On a regional basis, EnCana's USA Region anticipates meeting the
top end of its sales guidance - 725 million cubic feet of forecast
gas sales per day. In Canada, gas production growth has experienced
delays this year due to the short winter, a wet spring and greater
than expected declines in the Ladyfern field.
Current EnCana gas production is more than 3 billion cubic feet
per day. In the coming months, EnCana expects to increase production
from Greater Sierra, the Canadian Plains and the U.S. Rockies, allowing
the company to exit 2003 at the lower end of its 2004 gas sales
target.
In 2004, daily oil, NGLs and natural gas sales are expected to
increase by about 10 percent from the 2003 forecast sales levels
to between 805,000 and 885,000 barrels of oil equivalent per day,
comprised of natural gas sales between 3.25 billion and 3.45 billion
cubic feet per day and 265,000 and 310,000 barrels of oil and NGLs
per day.
Normal Course Issuer Bid purchases
As of September 19, 2003, EnCana has invested approximately $915
million purchasing 18,124,400 of its common shares for cancellation,
which represents 3.8 percent of EnCana's outstanding common shares
as at October 22, 2002. The shares were purchased at an average
price of $50.48 per common share under the company's Normal Course
Issuer Bid. The company expects to purchase a total of 5 percent
of the outstanding shares during 2003, and it intends to apply to
renew the bid, which expires October 21, 2003.
EnCana Corporation
EnCana is one of the world's leading independent oil and gas companies
and North America's largest independent natural gas producer and
gas storage operator. It has an enterprise value of approximately
C$30 billion. Ninety percent of the company's assets are in four
key North American growth platforms. EnCana is the largest producer
and landholder in Western Canada and is a key player in Canada's
emerging offshore East Coast basins.
Through its U.S. subsidiaries, EnCana is one of the largest gas
explorers and producers in the Rocky Mountain states and has a strong
position in the deepwater Gulf of Mexico. International subsidiaries
operate two key high potential international growth platforms: Ecuador,
where it is the largest private sector oil producer, and the U.K.
central North Sea, where it is the operator of a large oil discovery.
EnCana and its subsidiaries also conduct high upside potential
new ventures exploration in other parts of the world. EnCana is
driven to be the industry's high performance benchmark in production
cost, per-share growth and value creation for shareholders. EnCana
common shares trade on the Toronto and New York stock exchanges
under the symbol ECA.
Further information see www.encana.com.
Posted by Richard Price,
Editor Pipeline Magazine
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