Canadian Manufacturing

Encana slashes capital budget by $600M, cuts dividend 75 per cent

The announcement by one of Canada's largest oil and gas producers came as crude futures traded below US$35 a barrel

CALGARY—Encana Corp. says next year’s capital spending budget will be US$600 million lower than in 2015 and its dividend to shareholders will be cut by about 78 per cent.

The Calgary-based oil and gas producer is estimating a total capital investment of between US$1.5 billion and US$1.7 billion in 2016.

The company said Monday about half the capital spending will be in the Permian formation in the southern United States, one of its four core areas. It’s also focused on the Eagle Ford play in Texas and the Montney and Duverney plays in Western Canada.

Encana’s quarterly dividend will be cut to 1.5 cents per share, or six cents on an annualized basis—from seven cents per quarter or 28 cents annually—reducing the company’s payout to shareholders by $185 million per year.

It’s aiming to reduce corporate costs by 10 per cent compared with 2015 and a cut in drilling and completion costs by 10 to 15 per cent.

Encana president and CEO Doug Suttles said a strategic shift begun by Encana in 2013 has resulted in a more focused portfolio of assets that will deliver higher margins on every dollar of capital investment.

“We will continue to deliver strong margin growth through 2016 by directing the majority of our capital to drilling and completions activity in our core four assets,” Suttles said in a statement.

“This will maintain their scale and position the company to grow long-term shareholder value and cash flow into 2017 and beyond.”

The announcement by one of Canada’s largest oil and gas producers came as crude futures traded below US$35 a barrel, a level not seen since early 2009 during the deep global recession.

The company’s announcement also followed a landmark weekend agreement between nearly 200 countries, which have committed to reduce global greenhouse gas emissions, including from oil and gas, starting in 2020.

Encana is assuming West Texas Intermediate crude _ a North American benchmark _ at US$50 a barrel in 2016. As of Monday, it had fixed-price contracts to sell 48,000 barrels per day at $58.85 per barrel.

It also has price protections on a further 18,000 barrels per day of oil and 395 million cubic feet per day of gas, all above current futures prices.

Production from its four core areas will increase by 12 per cent compared with 2015, to the equivalent of between 260,000 and 280,000 barrels per day _ including crude, natural gas and natural gas liquids, Encana said.

The four core areas are expected to represent 75 per cent of Encana’s total production, which is estimated at between 340,000 and 370,000 oil-equivalent barrels per day in 2016.

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