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Encana boosts cash flow outlook as it cranks up Permian, Montney production

Encana Corp. doubled its five-year projection for free cash flow as the Canadian oil and gas producer boosted production from the Permian Basin in Texas and sold more high-value condensate from the Montney Shale.

In the Permian, Encana produced 82,600 barrels of oil equivalent per day in the fourth quarter of 2017, beating a company target of 75,000 boe/d, CEO Doug Suttles said on a conference call to discuss earnings. In its plan for the upcoming five years, Encana anticipates an average price of $55/boe, which would boost its projected free cash flow for that period to $3 billion from its October 2017 outlook of $1.5 billion.

Encana has been working to transform itself from a natural-gas-focused company to a producer of oil and liquids. It has become a major Canadian producer of condensate, a liquid associated with gas production, which it sells locally to oil sands companies for blending. In the pivot from natural gas the company has also reduced its presence to a few core regions from as many as 27 before the shift.

"Today, we have a leading North American unconventional resource portfolio with some of the best positions in four of the best places," Suttles said on the Feb. 15 call. "The Permian and Eagle Ford in the United States, and the Montney and Duvernay in Canada, and liquids production of over 150,000 barrels per day."

In Canada's prolific Montney and Duvernay shales, which straddle the border between Alberta and British Columbia, the company brought three processing plants online in the past year, which helped the company double its liquids production in the region to 29,000 bbl/d in the fourth quarter. The company said its condensate fetched about 99% of the price of benchmark West Texas Intermediate crude, reducing the impact of Canadian natural gas prices that were crimped by shipping bottlenecks in 2017.

"The Montney has lower capital cost and condensate rates that are similar to the Permian oil rates," COO Michael McAllister said on the call. "In 2017, Montney condensate received the highest realized price of any liquid stream in the portfolio. On top of all that, the royalty rates are 15% to 20% lower in the Montney than in the Permian."

Encana on Feb. 15 reported adjusted earnings of $114 million in the fourth quarter, up from $85 million in the same quarter in 2016. The adjusted earnings excluded a $327 million charge associated with changes in U.S. tax law. The company, which is based in Calgary, Alberta, reports in U.S. funds.