Encana, under his turnaround strategy
Mr. Suttles’s reversal indicates of how volatile the oil market has become. Encana, under his turnaround strategy, has shifted its attention – and cash – toward oil and natural gas liquids plays, rather than dry natural gas. Encana’s competitors have done the same, but as oil drops, that strategy could sting. Citibank, for example, on Tuesday said natural gas may now be worth more than natural gas liquids as oil plummets.
Encana said it will spend roughly 80 per cent of its 2015 capital budget on four plays it considers rich in oil and natural gas liquids: the Montney, Duvernay, Eagle Ford and Permian basin. It predicts oil and natural gas liquids will make up 75 per cent of its cash flow in 2015.
“The margin we’re receiving at these kinds of prices is still very high,” Mr. Suttles said in an interview. With oil trading at around $70 a barrel, Mr. Suttles said the company’s cost of production – which does not include acquisition, exploration and corporate expenses such as payroll – ranges between $35 and $55 a barrel of oil equivalent across its four key plays.
Mr. Suttles’s more conservative tone on spending compared to just a month ago reflects the continued slump in energy prices.
“No question, they’ve reduced their capital spending expectations because prices have continue to fall,” Randy Ollenberger, an analyst at Bank of Montreal, said.
By way of example, Arthur Grayfer, a Canadian Imperial Bank of Commerce analyst, expected Encana’s capital expenses to ring in between $3-billion and $3.7-billion in 2015, according to a note published Tuesday.