Encana to cut spending, grow oil and natural gas liquids production in 2014

CALGARY – Encana Corp.’s capital spending is expected to come in 10 per cent lower next year, while production of valuable oil and natural gas liquids is targeted to rise by 30 per cent, the company announced Wednesday.

Meanwhile, Husky energy Inc. (TSX:HSE) said it expects a jump in production next year as major projects come on stream amid a modest decrease in capital spending.

Calgary-based Encana (TSX:ECA) said three quarters of its planned $2.4 billion to $2.5 billion capital budget next year will be concentrated on five liquids-rich areas: the Montney and Duvernay in Western Canada; the DJ Basin in Colorado; the Tuscaloosa Marine Shale in the southeastern United States and the San Juan Basin in New Mexico.

Encana (TSX:ECA) has said its goal is to derive three-quarters of its cash flow from oil and natural gas liquids in 2017 by focusing on areas that can offer higher returns.

Encana does not expect its total forecasted production levels to change from last year, despite the spending cut. A 30 per cent boost in oil and natural gas liquids will be offset by a decline in less profitable dry natural gas, it said.

“We’ve heard many comments from investors that 2014 is a transition year and that the excitement doesn’t show up beyond this year. I would actually disagree with that comment,” said CEO Doug Suttles, who took the reins at Encana in June.

For example, Suttles said Encana’s five core assets are expected to churn out 45 per cent of its 2014 operating cash flow, even though they only comprise 25 per cent of projected production.

“Over time, we’re very confident that this focus on core value instead of production will deliver sustainable value to our shareholders,” said Suttles.

Encana isn’t anticipating a big change in commodity prices next year, forecasting natural gas prices to hit US$3.75 per 1,000 cubic feet and US$95 for West Texas Intermediate crude.

In unveiling a leaner, more focused strategy last month, Suttles announced that Encana would be cutting 20 per cent of its workforce of 4,900 full-time employees and contractors.

Suttles said Wednesday that those cuts are now complete. Encana expects to take a $65-million after-tax charge during the fourth quarter related to the restructuring.

At Husky, production is anticipated to come in at between 330,000 and 355,000 barrels of oil equivalent per day in 2014, compared with an expected average rate of 312,000 barrels this year.

It says its massive Liwan offshore natural gas project in the South China Sea is in the final stages of commissioning and is expected to start production in early 2014.

The first 60,000-barrel-per-day phase of Husky’s Sunrise oilsands project is slated to start up in late 2014.

Husky and its joint-venture partner, BP, plan to expand production at Sunrise in two 70,000-barrel-per-day future phases, eventually bringing total production at Sunrise to 200,000 barrels per day.

Husky, majority-owned by Hong Kong billionaire Li Ka-shing, has set a 2014 capital budget of $4.8 billion, compared with the $5 billion it expects to spend this year.

Encana shares were off about five per cent at $19.36 in early-afternoon trading on the Toronto Stock Exchange. Husky’s stock was up 1.5 per cent at $31.83.