Monday, April 25, 2011

Encana acquires liquids-rich Duvernay Shale acreage for C$1,600/acre.. Encana turns focus to gas liquids as low natural gas prices persist.

In recent months, Encana has assembled about 190,000 net acres in the Simonette and Kaybob areas of the Duvernay shale in Alberta, which it acquired for about $300 million or an average cost of about C$1,600 per acre. This exciting new play has the potential to add significant liquids production to the Canadian division and is a promising complement to the company’s liquids rich acreage in the Montney where it has 495,000 acres of land with liquids potential on it, in addition to 380,000 net acres in the Alberta Deep Basin area.




Michael Graham from Encana said, “The Duvernay play seems similar to the Eagle Ford and that there we could go from sort of a dry gas window into a liquids-rich window. Bulk of our acreage, probably 2/3 of our acreage, we think certainly will be in the liquids-rich area.” Encana plans to drill 3 or 4 horizontal wells into it and then the company may consider joint venture partners for Duvernay Shale. Recently, Encana struck a C$5.4 million JV with PetroChina on its Cutbank Ridge project. The snapshot of this deal is as follows:




Source: Derrick Petroleum E&P Transactions Database


Encana shifts focus to gas liquids!!
Encana delivered solid cash flow and grew natural gas production by 4% per share in the first quarter of 2011. Cash flow was US$955 million, or $1.29 per share – down 17% largely due to lower natural gas prices compared to the first quarter of 2010.


It’s part of a strategic shift that will see Encana focus on gas deposits with a higher proportion of condensates and light oil. Because natural gas liquids receive premium prices compared to crude, companies like Encana are using the dollars to offset the lower gas price and continue with ambitious unconventional gas drilling.


“By bringing on more oil and NGL production and stripping out more NGLs from our natural gas stream, we expect to significantly increase the weighting of liquids in our portfolio, capturing more value and enhancing returns,” CEO Randy Eresman said on a conference call.

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