Encana Corp., staring down painfully low natural gas prices, has increased its budget for the year, hoping to jack up production of more valuable commodities like propane and butane.
The Calgary-based company intends to spend an additional $600-million (U.S.) in 2012, on top of its original $2.9-billion budget. Encana expects the plan, detailed in a statement late Wednesday, will increase its production of so-called natural gas liquids by 7 per cent for the year.
Natural gas companies must find a way to deal with record-low commodity prices. Many, including Encana, have stopped production at some natural gas wells, and cut back on exploration. Spending in the natural gas sector has dropped, and observers expect deeper cuts. Encana's decision to spend more in 2012, however, reflects its size and determination to avoid ruin because of low natural gas prices.
Encana, North America's second-largest natural gas company, controls roughly three million acres of land it believes to be rich in natural gas liquids. These products are worth more than dry natural gas, so companies like Encana have directed their attention, and cash, toward these properties. While Encana expects enormous growth in natural gas liquids, it is starting from a very small base.
"We're encouraged with the success we have realized so far this year in our oil and liquids rich natural gas plays. Increasing our 2012 capital investment supports our goal of developing a more diversified production portfolio," Randy Eresman, Encana's chief executive, said in a statement. "Our teams have been successfully transitioning their technical and commercial expertise from the development of natural gas plays to oil and natural gas liquids rich plays, and through their efforts, we expect to achieve a more balanced operating cash flow stream in 2013."
Encana expects to produce 30,000 barrels of liquids per day in 2012 and reach between 60,000 and 70,000 barrels per day in 2013, the statement said. Its dry natural gas production will hover around three billion cubic feet per day. This means natural gas will continue to overwhelm Encana's production, even as it chases more oil and liquids plays.
The company, run by Randy Eresman, originally planned to drill between 40 and 45 wells in 2012, but this has increased to between 115 and 120 wells in 10 plays primarily focused on oil. Encana said it wants to drill approximately 350 oil and liquids-rich wells in 2013.
Encana, which spun off oil sands company Cenovus Energy Inc. in 2009, plans to spend between $4-billion and $5-billion in 2013, with cash flow ringing in between $2.5-billion and $3.5-billion. It hopes to sell between $1-billion and $1.5-billion in assets. Cash flow is used as a yardstick to determine how much a company can afford to invest, and energy companies have largely promised to keep spending in check with cash flow.
Encana has about $2-billion of cash on its balance sheet and predicts cash flow will total $3.5-billion in 2012.
"We have significant financial flexibility to support the execution of Encana's planned capital investments," Mr. Eresman said.
Natural gas is trading around $2.50 per million British thermal units now.