FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For April 27, 2005 | Commission File Number: 1-15226 |
ENCANA CORPORATION
(Translation of registrants name into English)
1800, 855 - 2nd Street SW
Calgary, Alberta, Canada T2P 2S5
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F o | Form 40-F þ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes o | No þ |
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
SIGNATURES | ||||||||
Form 6-K Exhibit Index | ||||||||
News Release |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENCANA CORPORATION (Registrant) |
||||
By: | /s/ Linda H. Mackid | |||
Name: | Linda H. Mackid | |||
Title: | Assistant Corporate Secretary | |||
Date: April 27, 2005
Form 6-K Exhibit Index
Exhibit No. | ||
1. | News release dated April 27, 2005 referenced as: EnCanas first quarter cash flow reaches US$1.41 billion, or $3.11 per share up 46 percent per share |
EnCanas first quarter cash flow reaches US$1.41 billion,
or
$3.11 per share up 46 percent per share
Total natural gas, oil and NGLs sales per share up 8 percent
Quarterly
dividend increased 50 percent to 15 cents per share
Calgary, Alberta, (April 27, 2005) EnCana Corporations (TSX & NYSE: ECA) first quarter 2005 total cash flow per share increased 46 percent to US$3.11 per share diluted, or $1.41 billion, compared to the first quarter of 2004. Cash flow and operating earnings rose due to increased sales, higher natural gas and liquids prices and strong operating performance during the first quarter. Total operating earnings increased 34 percent per share to $1.34 per share diluted, or $611 million, compared to the first quarter of 2004. First quarter sales of natural gas, oil and natural gas liquids (NGLs) from total operations increased 8 percent per share from the first quarter of 2004. Sales were 4.52 billion cubic feet of gas equivalent (Bcfe) per day. EnCanas first quarter net earnings were impacted by an unrealized after-tax loss due to mark-to-market accounting of all hedges, which run primarily through 2006. This resulted in a first quarter net loss from total operations of 10 cents per share diluted, or $45 million.
EnCana increases quarterly dividend 50 percent to 15 cents per share
Given EnCanas strong financial and operating performance, the board of directors has increased the
quarterly dividend 50 percent from 10 to 15 cents per share, on a pre-split basis, which is payable
on June 30, 2005 to common shareholders of record as of June 15, 2005.
In the past several months, the market has recognized the merits of our sharpened focus on profitable, long life North American resource plays. Our unconventional strategy is delivering strong shareholder value. Along with disciplined capital investment in our large portfolio of resource plays, we are returning capital to shareholders through share buybacks and todays 50 percent dividend increase as we work to build the net asset value of every EnCana share, said Gwyn Morgan, EnCanas President & Chief Executive Officer.
IMPORTANT NOTE: EnCana reports in U.S. dollars and follows U.S. protocols, which report sales and reserves on an after-royalties basis. All dollar figures are U.S. dollars unless otherwise noted. EnCana is treating the U.K. and Ecuador operations as discontinued because the U.K. operations were sold in December 2004 and EnCana plans to sell its Ecuador assets. Total results, which include results from Ecuador in 2005 and from the U.K. in prior periods, are reported in the companys financial statements included in this news release and in supplementary documents posted on its Web site www.encana.com.
Q1 2005 Financial and Operating Highlights
Continuing operations | Total operations | |||
Cash flow per share diluted |
$2.88, up 50% | $3.11, up 46% | ||
Operating earnings per share diluted |
$1.14, up 15% | $1.34, up 34% | ||
Net (loss) per share diluted |
$(0.28) | $(0.10) | ||
Natural gas sales |
3.15 Bcf/d, up 17% | 3.15 Bcf/d, up 16% | ||
Oil and NGLs sales |
157,000 bbls/d, down 5% | 230,000 bbls/d, down 13% | ||
Total sales on Bcfe basis |
4.1 Bcfe/d, up 11% | 4.5 Bcfe/d, up 5% | ||
Total Mcfe sales, per 1,000 shares |
825 Mcfe, up 14% | 913 Mcfe, up 8% | ||
All references in the remaining text of this news release are on a continuing operations basis.
1
Continuing operations: Cash flow up 50 percent per share; Operating earnings up 15 percent per
share
EnCanas first quarter 2005 cash flow per share from continuing operations increased 50 percent to
$2.88 per share diluted, or $1.31 billion, compared to the same period in 2004. First quarter cash
flow from continuing operations includes a cash tax provision of $225 million, which is consistent
with the companys 2005 guidance. Operating earnings from continuing operations per share increased
15 percent to $1.14 per share diluted, or $518 million, compared to the first quarter of 2004.
EnCanas first quarter net earnings from continuing operations were reduced by $628 million,
after-tax, as a result of the unrealized mark-to-market accounting standard governing price risk
management activity. About one-third of the mark-to-market loss is attributed to price hedges put
in place in the spring of 2004, relating to the acquisition of Tom Brown, Inc. The Tom Brown
volumes were hedged through 2006 as a prudent financial measure to help lock in strong returns on
the 2004 acquisition. The balance primarily applies to other oil and gas hedges running through
2006. First quarter net earnings also include an after-tax unrealized loss of $15 million due to
translation of U.S. dollar denominated debt issued in Canada. These unrealized hedging and currency
losses resulted in a net loss from continuing operations of 28 cents per share diluted, or $125
million, compared to net earnings of $326 million in the same 2004 period.
Sales from continuing operations up 14 percent per share
First quarter sales of natural gas, oil and NGLs from continuing operations increased 14 percent
per share from the first quarter of 2004. First quarter sales were 4.09 Bcfe per day.
A successful winter of drilling across our Canadian resource plays, the continued development of our expanded assets in the U.S. and increasing demand and prices for natural gas and oil have combined to generate strong first quarter cash flow and operating earnings for EnCana. Despite a number of weather related setbacks in the quarter, we are on track in 2005 to meet our sales guidance. Natural gas production from EnCanas North American resource plays is expected to drive a steady climb during the next three quarters towards achieving 2005 sales of between 3.35 billion and 3.50 billion cubic feet of natural gas per day, Morgan said.
We continue to focus on efficient execution in the development of our key long-life North American resource plays, where daily production has increased 23 percent in the past year. By applying rigorous capital discipline and adding new efficiencies each year, we are achieving strong returns from these plays, Morgan said.
Natural gas sales from continuing operations up 20 percent per share in past year
EnCanas first quarter natural gas sales from continuing operations increased 20 percent per share
to 3.15 billion cubic feet per day compared with the first quarter of 2004. Oil and NGLs sales from
continuing operations of 157,000 barrels per day decreased 3 percent per share, due to the sale of
conventional oil properties during 2004. Operating costs from continuing operations were 64 cents
per thousand cubic feet of gas equivalent (Mcfe), which is slightly higher than the companys full
year forecast range due mainly to the impact of an appreciating Canadian dollar. EnCana expects
full year operating costs to be within guidance of 55 to 60 cents per Mcfe. First quarter capital
investment was $1.5 billion. EnCana drilled 1,352 net wells during the first quarter, about
one-quarter of its 2005 forecast of between 5,000 and 5,500 net wells. At the end of March 2005,
the company had about 1,500 gas wells awaiting tie-in.
2
EnCana updates Unbooked Resource Potential: 19 trillion cubic feet of gas, 900 million barrels of
oil & NGLs
Resource plays typically have huge long term potential beyond currently producing wells. EnCanas
Total Resource Portfolio consists of its proved reserves and its Unbooked Resource Potential.
Proved reserves are estimated by independent evaluators in accordance with regulatory standards and
industry best practices. EnCana engineers have recently updated the companys Unbooked Resource
Potential effective December 31, 2004. In 2004, EnCanas proved reserves from continuing operations
grew by 19 percent, before bitumen revision, to 14.8 trillion cubic feet equivalent. Beyond proved
reserves, the company has estimated its Unbooked Resource Potential to be the quantities of
hydrocarbons that may be added to proved reserves through the low-risk development of known
resources within existing landholdings, that exceed the companys targeted economic thresholds.
EnCana estimates that this Unbooked Resource Potential could be converted to proved reserves over
the next five years should the company choose to exploit its drilling inventory at a rate which
results in compounded annual production growth exceeding 10 percent. Should EnCana proceed with a
lower growth rate strategy, it is expected that the Unbooked Resource Potential would be converted
to proved reserves over a longer time frame. As of December 31, 2004, EnCana estimates its Unbooked
Resource Potential is 19 trillion cubic feet of natural gas and 900 million barrels of oil and
NGLs. The estimate of Unbooked Resource Potential is based on information currently available to
EnCana; actual results may differ materially from these estimates.
EnCanas resource life exceeds a quarter century
EnCanas Total Resource Portfolio is key to EnCanas predictable long-term development plans. Based
on EnCanas 2004 production, the companys estimated total natural gas resource life is about 27
years. For oil and NGLs, the companys total oil and NGLs resource life estimate is about 26 years.
EnCanas total resource drilling inventory consists of about 36,000 gas wells and about 1,000 oil
wells at year end 2004.
EnCana is extremely well positioned to continue to create shareholder value over the long run as it executes on its huge drilling inventory within our low-risk manufacturing style development program. Largely contained in approximately 18 million net undeveloped acres of onshore North American lands, this total resource life extends for more than a quarter century, based on 2004 production rates, and we believe has the ability to fuel sustainable, profitable growth for many years, said Randy Eresman, EnCanas Chief Operating Officer.
EnCanas Total Resource Portfolio
Natural Gas | Oil & NGLs | Evaluated By | ||||||||||
(Tcf) | (MMbbls) | |||||||||||
EnCana proved reserves* |
10.5 | **721 | Independent qualified reserves evaluators | |||||||||
(at Dec. 31, 2004) |
||||||||||||
Unbooked Resource Potential |
19.0 | 900 | EnCana engineers | |||||||||
Total Resource Portfolio |
29.5 | 1,621 | ||||||||||
* | Continuing operations (excludes Ecuador) |
|
** | Before bitumen revision |
2005 sales on track
EnCana is on track to meet its 2005 full year sales guidance, from continuing operations, of
between 4.25 billion and 4.50 billion cubic feet of gas equivalent per day, comprised of between
3.35 billion and 3.50 billion cubic feet of natural gas per day and between 150,000 and 170,000
barrels of oil and NGLs per day. The companys sales guidance assumes the divestiture of
approximately 22,000 BOE per day of conventional Canadian production later this year. The liquids
guidance does not include production of between 75,000 and 85,000 barrels of oil per day from
Ecuador, which has been treated as discontinued due to the planned divestiture.
3
North American natural gas prices rise in the first quarter of 2005
EnCanas North American realized field prices, excluding financial hedging, averaged $5.81 per
thousand cubic feet, up 10 percent in the first quarter of 2005 from an average of $5.26 per
thousand cubic feet in the same 2004 period. Including hedging, EnCanas average first quarter
realized gas price was $5.99 per thousand cubic feet. Natural gas prices are expected to stay
strong due to the tight North American supply and demand balance driven by continued demand growth
primarily from the electricity generation industry while overall supply has struggled to keep pace.
The average first quarter benchmark NYMEX index gas price was $6.27 per thousand cubic feet, up 10
percent from $5.69 per thousand cubic feet in the first quarter of 2004.
First quarter world oil prices remain strong; Canadian heavy oil price differentials widen
World oil prices continued to be strong through the first quarter of 2005 due to increasing global
demand, primarily in Asia and North America. During the first quarter of 2005, the average
benchmark West Texas Intermediate (WTI) crude oil price was $50.03 per barrel, up 42 percent from
the first quarter 2004 average of $35.25 per barrel. The substantially higher level of WTI,
combined with limited worldwide upgrading capacity for heavy crude oils, resulted in a significant
widening of light/heavy crude oil price differentials. In the first quarter, the WTI/Bow River
differential increased 105 percent to $18.51 per barrel compared to the same 2004 period. In the
first quarter, EnCanas average realized oil and NGLs price, excluding hedging, was $29.77 per
barrel, up 17 percent; including hedging it was $24.59 per barrel, up 19 percent compared to the
same period in 2004.
Risk management strategy
EnCanas market risk mitigation strategy is intended to help deliver greater predictability of cash
flow and returns on investment. Detailed risk management positions at March 31, 2005 are presented
in Note 12 to the unaudited first quarter consolidated financial statements. In the first quarter
of 2005, EnCanas financial commodity risk management measures resulted in after-tax cash flow from
continuing operations being lower by approximately $10 million, comprised of a $49 million loss on
oil hedges, offset by a $35 million gain on gas hedges and a $4 million gain on other hedges.
Hedging aimed at providing downside price protection
A review of the companys hedging strategy in 2004 resulted in a preference towards the use of
hedging instruments which provide downside protection, but do not limit upside in a rising price
environment. Currently, about 79 percent of 2005 forecast gas sales is exposed to price upside,
while about 53 percent has downside price protection. For oil, about 81 percent of 2005 forecast
oil sales is exposed to price upside, while about 34 percent has downside protection. Overall, on a
Mcfe basis, about 80 percent of EnCanas forecast 2005 sales are exposed to market price upside.
Beyond 2005, fixed price hedges are in place for approximately 810 million cubic feet per day of
2006 gas production and 31 million cubic feet per day of 2007 gas production.
4
EnCana Continuing Operations Highlights
US$ and U.S. protocols
Financial Highlights | ||||||||||||
(as at and for the period ended March 31) | Q1 | Q1 | ||||||||||
($ millions, except per share amounts) | 2005 | 2004 | % Δ | |||||||||
Revenues, net of royalties |
2,661 | 2,730 | - 3 | |||||||||
Cash flow |
1,308 | 896 | + 46 | |||||||||
Per share basic |
2.93 | 1.94 | + 51 | |||||||||
Per share diluted |
2.88 | 1.92 | + 50 | |||||||||
Add back: |
||||||||||||
Total cash tax |
225 | 225 | | |||||||||
Pre-tax cash flow |
1,533 | 1,121 | + 37 | |||||||||
Net capital investment |
1,466 | 958 | + 53 | |||||||||
Net (loss) earnings |
(125 | ) | 326 | - 138 | ||||||||
Per share basic |
(0.28 | ) | 0.71 | - 139 | ||||||||
Per share diluted |
(0.28 | ) | 0.70 | - 140 | ||||||||
Add (Deduct): |
||||||||||||
Unrealized mark-to-market accounting loss, after-tax |
628 | 213 | + 195 | |||||||||
Unrealized foreign exchange loss on translation of
U.S. dollar debt issued in Canada, after-tax |
15 | 32 | - 53 | |||||||||
Future tax (recovery) due to tax rate change |
| (109 | ) | n/a | ||||||||
Operating earnings |
518 | 462 | + 12 | |||||||||
Per share diluted |
1.14 | 0.99 | + 15 | |||||||||
Common shares (millions) |
||||||||||||
Weighted average (basic) |
445.9 | 460.9 | - 3 | |||||||||
Weighted average (diluted) |
454.5 | 467.1 | - 3 | |||||||||
EnCana financial results in U.S. dollars and operating results according to U.S. protocols
EnCana reports in U.S. dollars and according to U.S. protocols in order to facilitate a more direct
comparison to other North American upstream oil and natural gas exploration and development
companies. Reserves and production are reported on an after-royalty basis.
Operating Highlights | ||||||||||||
(for the period ended March 31) | Q1 | Q1 | ||||||||||
(After royalties) | 2005 | 2004 | % Δ | |||||||||
North America Natural Gas (MMcf/d) |
||||||||||||
Production |
3,119 | 2,684 | + 16 | |||||||||
Inventory withdrawal |
27 | | n/a | |||||||||
Natural gas sales (MMcf/d) |
3,146 | 2,684 | + 17 | |||||||||
North America Oil and NGLs (bbls/d) |
157,184 | 165,877 | - 5 | |||||||||
Total sales (MMcfe/d) |
4,089 | 3,679 | + 11 | |||||||||
Per share sales (Mcfe per 1,000 shares) |
825 | 726 | + 14 | |||||||||
5
Key resource play growth up 23 percent across EnCanas portfolio
In North America, development capital continues to be focused on turning EnCanas Unbooked Resource
Potential into production and reserves. First quarter oil and gas production from key North
American resource plays has increased more than 23 percent since the first quarter of 2004. This is
driven mainly by increases in gas production in the Piceance basin in Colorado, shallow gas and
coalbed methane (CBM) on the companys legacy Suffield and Palliser Blocks, Cutbank Ridge in
northeast British Columbia, the acquisition of East Texas lands and growth from the Fort Worth
resource play, plus increases in oil production at Pelican Lake in northeast Alberta.
Growth from key North American resource plays
Daily Production | ||||||||||||||||||||||||||||
Resource Play | 2005 | 2004 | 2003 | |||||||||||||||||||||||||
(After royalties) | Q1 | Full Year | Q4 | Q3 | Q2 | Q1 | Full Year | |||||||||||||||||||||
Natural Gas (MMcf/d) |
||||||||||||||||||||||||||||
Jonah |
431 | 389 | 404 | 373 | 387 | 394 | 374 | |||||||||||||||||||||
Piceance |
300 | 261 | 291 | 282 | 251 | 218 | 151 | |||||||||||||||||||||
East Texas |
82 | 50 | 83 | 81 | 36 | | | |||||||||||||||||||||
Fort Worth |
61 | 27 | 34 | 31 | 23 | 21 | 7 | |||||||||||||||||||||
Greater Sierra |
195 | 230 | 211 | 244 | 247 | 216 | 143 | |||||||||||||||||||||
Cutbank Ridge |
56 | 40 | 50 | 45 | 41 | 22 | 3 | |||||||||||||||||||||
CBM |
33 | 17 | 27 | 19 | 11 | 10 | 4 | |||||||||||||||||||||
Shallow Gas |
625 | 592 | 629 | 595 | 590 | 554 | 507 | |||||||||||||||||||||
Oil (Mbbls/d) |
||||||||||||||||||||||||||||
Foster Creek |
30 | 29 | 28 | 29 | 30 | 28 | 22 | |||||||||||||||||||||
Pelican Lake |
21 | 19 | 23 | 22 | 15 | 15 | 16 | |||||||||||||||||||||
Total (MMcfe/d) |
2,091 | 1,892 | 2,034 | 1,976 | 1,858 | 1,696 | 1,416 | |||||||||||||||||||||
% change from Q1 2004 |
23.3 | |||||||||||||||||||||||||||
% change from prior period |
2.8 | 33.6 | 2.9 | 6.4 | 9.6 | 7.1 | ||||||||||||||||||||||
Drilling activity in key North American resource plays
Net Wells Drilled | ||||||||||||||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||
Resource Play | Q1 | Full year | Q4 | Q3 | Q2 | Q1 | Full Year | |||||||||||||||||||||
Natural Gas |
||||||||||||||||||||||||||||
Jonah |
28 | 70 | 21 | 17 | 21 | 11 | 59 | |||||||||||||||||||||
Piceance |
77 | 250 | 47 | 66 | 66 | 71 | 284 | |||||||||||||||||||||
East Texas |
21 | 50 | 23 | 20 | 7 | | | |||||||||||||||||||||
Fort Worth |
9 | 36 | 8 | 10 | 10 | 8 | 5 | |||||||||||||||||||||
Greater Sierra |
59 | 187 | 18 | 13 | 21 | 135 | 199 | |||||||||||||||||||||
Cutbank Ridge |
23 | 50 | 17 | 12 | 4 | 17 | 20 | |||||||||||||||||||||
CBM |
164 | 577 | 126 | 272 | 98 | 81 | 267 | |||||||||||||||||||||
Shallow Gas |
273 | 1,552 | 222 | 384 | 416 | 530 | 2,366 | |||||||||||||||||||||
Oil |
||||||||||||||||||||||||||||
Foster Creek |
17 | 11 | 7 | | | 4 | 8 | |||||||||||||||||||||
Pelican Lake |
19 | 92 | | 33 | 30 | 29 | 134 | |||||||||||||||||||||
Total net wells |
690 | 2,875 | 489 | 827 | 673 | 886 | 3,342 | |||||||||||||||||||||
6
Corporate developments
Shareholders to vote today on two-for-one share split
At the Annual and Special meeting of EnCanas shareholders later today, EnCanas shareholders are
being asked to approve the split of EnCanas outstanding common shares on a two-for-one basis. In
addition to shareholder approval, the stock split is subject to the receipt of all required
regulatory approvals.
If approved by shareholders, and subject to regulatory approvals, each shareholder will receive one additional common share for each common share held on the record date for the stock split of May 12, 2005. Pursuant to the rules of the Toronto Stock Exchange, EnCanas common shares will commence trading on a subdivided basis at the opening of business on May 10, 2005, which is the second trading day preceding the record date. Also on May 10, 2005, EnCanas common shares listed on the New York Stock Exchange (NYSE) will commence trading with rights entitling holders to an additional common share for each common share held upon the commencement of trading of the common shares on a subdivided basis on the NYSE. The trading of the common shares on a subdivided basis on the NYSE will occur one day after the delivery of share certificates to registered holders of EnCanas common shares. It is anticipated that share certificates representing the additional common shares resulting from the stock split will be mailed to registered common shareholders on or about May 20, 2005.
Quarterly dividend increased 50 percent to 15 cents per share
EnCanas board of directors has increased the companys quarterly dividend 50 percent to 15 cents
per share, on a pre-split basis, which is payable on June 30, 2005 to common shareholders of record
as of June 15, 2005.
Normal Course Issuer Bid purchases
To date in 2005, EnCana has purchased for cancellation approximately 11 million of its shares at an
average price of $61.65 per share under its current Normal Course Issuer Bid, which allows the
company to purchase up to 10 percent of the companys public float at the time of the approval of
the original bid October, 2004. The company had 440.8 million shares outstanding at March 31,
2005. EnCanas 2005 capital program is expected to be funded by cash flow, while the companys
planned divestitures of conventional assets in 2005 are expected to bring in substantial funds
which EnCana believes will provide the opportunity to increase net asset value per share through
share purchases and debt repayment.
Financial strength
EnCana maintains a strong balance sheet. At March 31, 2005 the companys net debt-to-capitalization ratio was 39:61. EnCanas net debt-to-EBITDA multiple, on a trailing 12-month basis, was 1.8 times. These ratios are expected to decrease through the year due to cash inflows from operations and asset sales.
In the first quarter of 2005, EnCana invested $1,519 million of capital in continuing operations. Net divestitures were $53 million, resulting in net capital investment in continuing operations of $1,466 million.
7
CONFERENCE CALL TODAY
7:15 a.m. Mountain Time (9:15 a.m. Eastern Time)
EnCana Corporation will host a conference call today, Wednesday, April 27, 2005 starting at 7:15 a.m., Mountain Time (9:15 a.m. Eastern Time), to discuss EnCanas first quarter 2005 financial and operating results.
To participate, please dial (913) 312-1295 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 5 p.m. on April 27, 2005 until midnight May 3, 2005 by dialling (888) 203-1112 or (719) 457-0820 and entering pass code 9649948.
A live audio Web cast of the conference call will also be available via EnCanas Web site, www.encana.com, under Investor Relations. The Web cast will be archived for approximately 90 days.
EnCana Corporation
With an enterprise value of approximately US$38 billion, EnCana is one of North Americas leading
natural gas producers, is among the largest holders of gas and oil resource lands onshore North
America and is a technical and cost leader in the in-situ recovery of oilsands bitumen. EnCana
delivers predictable, reliable, profitable growth from its portfolio of long-life resource plays
situated in Canada and the United States. Contained in unconventional reservoirs, resource plays
are large contiguous accumulations of hydrocarbons, located in thick or areally extensive deposits,
that typically have low geological and commercial development risk, low average decline rates and
very long producing lives. The application of technology to unlock the huge resource potential of
these plays typically results in continuous increases in production and reserves and decreases in
costs over multiple decades of resource play life. EnCana common shares trade on the Toronto and
New York stock exchanges under the symbol ECA.
NOTE 1: Non-GAAP measures
This news release contains references to cash flow, pre-tax cash flow, cash flow from continuing
operations, operating earnings from continuing operations and total operating earnings. Total
operating earnings is a non-GAAP measure that shows net earnings excluding non-operating items such
as the after-tax impacts of a gain on the sale of discontinued operations, the after-tax gain/loss
of unrealized mark-to-market accounting for derivative instruments, the after-tax gain/loss on
translation of U.S. dollar denominated debt issued in Canada and the effect of the reduction in
income tax rates. Management believes these items reduce the comparability of the companys
underlying financial performance between periods. The majority of the unrealized gains/losses that
relate to U.S. dollar debt issued in Canada are for debt with maturity dates in excess of five
years. These measures have been described and presented in this news release in order to provide
shareholders and potential investors with additional information regarding EnCanas liquidity and
its ability to generate funds to finance its operations.
ADVISORY REGARDING RESERVES DATA AND OTHER OIL AND GAS INFORMATION EnCanas disclosure of reserves data and other oil and gas information is made in reliance on an exemption granted to EnCana by Canadian securities regulatory authorities which permits it to provide such disclosure in accordance with U.S. disclosure requirements. The information provided by EnCana may differ from the corresponding information prepared in accordance with Canadian disclosure standards under National Instrument 51-101 (NI 51-101). EnCanas reserves quantities represent net proved reserves calculated using the standards contained in Regulation S-X of the U.S. Securities and Exchange Commission. Further information about the differences between the U.S. requirements and the NI 51-101 requirements is set forth under the heading Note Regarding Reserves Data and Other Oil and Gas Information in EnCanas Annual Information Form.
In this news release, certain crude oil and NGLs volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic feet (Mcf). Also, certain natural gas volumes have been converted to barrels of oil equivalent (BOE) on the same basis. BOE and cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not necessarily represent value equivalency at the well head.
8
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS In the interests of providing EnCana shareholders and potential investors with information regarding EnCana, including managements assessment of EnCanas and its subsidiaries future plans and operations, certain statements contained in this news release are forward-looking statements within the meaning of the safe harbour provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements in this news release include, but are not limited to: future economic and operating performance (including per share growth and increase in net asset value); anticipated life of proved reserves; anticipated Unbooked Resource Potential; anticipated conversion of Unbooked Resource Potential to proved reserves; estimates of the companys Total Resource Portfolio; anticipated growth and success of resource plays and the expected characteristics of resource plays; anticipated total resource life, including total natural gas resource life and total oil and NGLs resource life; planned divestitures of conventional Canadian properties, the potential structure of such transactions and the potential monetization of such assets; planned sale of interests in the Gulf of Mexico and Ecuador and the timing of such potential transactions; the expected proceeds from planned divestitures; expected proportion of total production and cash flows contributed by natural gas; anticipated success of EnCanas market risk mitigation strategy and EnCanas ability to participate in commodity price upside; the anticipated steps to implement the proposed two-for-one share split and the impact of such a split; anticipated purchases pursuant to the Normal Course Issuer Bid; estimated reserve life indices; potential demand for gas; anticipated production in 2005 and beyond; anticipated drilling; potential capital expenditures and investment; potential oil, natural gas and NGLs sales in 2005 and beyond; anticipated ability to meet production, operating cost and sales guidance targets; anticipated costs; anticipated prices for natural gas; potential sale of the companys NGLs business and the timing of such a transaction; potential risks associated with drilling and references to potential exploration. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the companys actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: volatility of oil and gas prices; fluctuations in currency and interest rates; product supply and demand; market competition; risks inherent in the companys marketing operations, including credit risks; imprecision of reserves estimates and estimates of recoverable quantities of oil, natural gas and liquids from resource plays and other sources not currently classified as proved reserves; the companys ability to replace and expand oil and gas reserves; its ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; the companys ability to secure adequate product transportation; changes in environmental and other regulations or the interpretations of such regulations; political and economic conditions in the countries in which the company operates, including Ecuador; the risk of war, hostilities, civil insurrection and instability affecting countries in which the company operates and terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions made against the company; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by EnCana. Although EnCana believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive.
Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release, and EnCana does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Further information on EnCana Corporation is available on the companys Web site, www.encana.com, or by contacting:
9
FOR FURTHER INFORMATION: Investor contact: EnCana Corporate Development Sheila McIntosh Vice-President, Investor Relations (403) 645-2194 Paul Gagne Manager, Investor Relations (403) 645-4737 Ryder McRitchie Manager, Investor Relations (403) 645-2007 |
Media contact: Alan Boras Manager, Media Relations (403) 645-4747 |
10
Interim Consolidated Financial Statements
(unaudited)
For the period ended March 31, 2005
EnCana Corporation
U.S. DOLLARS
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
CONSOLIDATED
STATEMENT OF EARNINGS (unaudited)
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
($ millions, except per share amounts) | 2005 | 2004 | ||||||||||
REVENUES, NET OF ROYALTIES |
||||||||||||
Upstream |
(Note 2) | $ | 2,106 | $ | 1,629 | |||||||
Midstream & Market Optimization |
(Note 2) | 1,527 | 1,419 | |||||||||
Corporate |
(Note 2) | (972 | ) | (318 | ) | |||||||
2,661 | 2,730 | |||||||||||
EXPENSES |
(Note 2) | |||||||||||
Production and mineral taxes |
87 | 54 | ||||||||||
Transportation and selling |
136 | 135 | ||||||||||
Operating |
372 | 317 | ||||||||||
Purchased product |
1,363 | 1,287 | ||||||||||
Depreciation, depletion and amortization |
686 | 526 | ||||||||||
Administrative |
61 | 49 | ||||||||||
Interest, net |
100 | 79 | ||||||||||
Accretion of asset retirement obligation |
(Note 8) | 9 | 6 | |||||||||
Foreign exchange loss |
(Note 5) | 31 | 59 | |||||||||
Stock-based compensation |
4 | 5 | ||||||||||
Gain on dispositions |
(Note 4) | | (34 | ) | ||||||||
2,849 | 2,483 | |||||||||||
NET (LOSS) EARNINGS BEFORE INCOME TAX |
(188 | ) | 247 | |||||||||
Income tax recovery |
(Note 6) | (63 | ) | (79 | ) | |||||||
NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS |
(125 | ) | 326 | |||||||||
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS |
(Note 3) | 80 | (36 | ) | ||||||||
NET (LOSS) EARNINGS |
$ | (45 | ) | $ | 290 | |||||||
NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS PER COMMON SHARE |
(Note 11) | |||||||||||
Basic |
$ | (0.28 | ) | $ | 0.71 | |||||||
Diluted |
$ | (0.28 | ) | $ | 0.70 | |||||||
NET (LOSS) EARNINGS PER COMMON SHARE |
(Note 11) | |||||||||||
Basic |
$ | (0.10 | ) | $ | 0.63 | |||||||
Diluted |
$ | (0.10 | ) | $ | 0.62 | |||||||
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (unaudited)
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
($ millions) | 2005 | 2004 | ||||||||||
RETAINED EARNINGS, BEGINNING OF YEAR |
$ | 7,935 | $ | 5,276 | ||||||||
Net (Loss) Earnings |
(45 | ) | 290 | |||||||||
Dividends on Common Shares |
(44 | ) | (46 | ) | ||||||||
Charges for Normal Course Issuer Bid |
(Note 9) | (490 | ) | (120 | ) | |||||||
Charges for Shares Repurchased and Held |
(Note 9) | (70 | ) | | ||||||||
RETAINED EARNINGS, END OF PERIOD |
$ | 7,286 | $ | 5,400 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
12
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
CONSOLIDATED
BALANCE SHEET (unaudited)
As at | As at | |||||||||||
March 31, | December 31, | |||||||||||
($ millions) | 2005 | 2004 | ||||||||||
ASSETS |
||||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
$ | 441 | $ | 602 | ||||||||
Accounts receivable and accrued revenues |
1,556 | 1,898 | ||||||||||
Risk management |
(Note 12) | 159 | 336 | |||||||||
Inventories |
209 | 513 | ||||||||||
Assets of discontinued operations |
(Note 3) | 201 | 156 | |||||||||
2,566 | 3,505 | |||||||||||
Property, Plant and Equipment, net |
(Note 2) | 23,870 | 23,140 | |||||||||
Investments and Other Assets |
372 | 334 | ||||||||||
Risk Management |
(Note 12) | 72 | 87 | |||||||||
Assets of Discontinued Operations |
(Note 3) | 1,675 | 1,623 | |||||||||
Goodwill |
2,515 | 2,524 | ||||||||||
(Note 2) | $ | 31,070 | $ | 31,213 | ||||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||
Current Liabilities |
||||||||||||
Accounts payable and accrued liabilities |
$ | 1,953 | $ | 1,879 | ||||||||
Income tax payable |
384 | 359 | ||||||||||
Risk management |
(Note 12) | 826 | 241 | |||||||||
Liabilities of discontinued operations |
(Note 3) | 311 | 280 | |||||||||
Current portion of long-term debt |
(Note 7) | 187 | 188 | |||||||||
3,661 | 2,947 | |||||||||||
Long-Term Debt |
(Note 7) | 7,695 | 7,742 | |||||||||
Other Liabilities |
90 | 118 | ||||||||||
Risk Management |
(Note 12) | 401 | 192 | |||||||||
Asset Retirement Obligation |
(Note 8) | 639 | 611 | |||||||||
Liabilities of Discontinued Operations |
(Note 3) | 121 | 102 | |||||||||
Future Income Taxes |
4,886 | 5,193 | ||||||||||
17,493 | 16,905 | |||||||||||
Shareholders Equity |
||||||||||||
Share capital |
(Note 9) | 5,210 | 5,299 | |||||||||
Share options, net |
| 10 | ||||||||||
Paid in surplus |
60 | 28 | ||||||||||
Retained earnings |
7,286 | 7,935 | ||||||||||
Foreign currency translation adjustment |
1,021 | 1,036 | ||||||||||
13,577 | 14,308 | |||||||||||
$ | 31,070 | $ | 31,213 | |||||||||
See accompanying Notes to Consolidated Financial Statements.
13
Interim Report
For the period ended March 31, 2005
EnCana Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Three Months Ended | ||||||||||||
March 31, | ||||||||||||
($ millions) | 2005 | 2004 | ||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net (loss) earnings from continuing operations |
$ | (125 | ) | $ | 326 | |||||||
Depreciation, depletion and amortization |
686 | 526 | ||||||||||
Future income taxes |
(Note 6) | (288 | ) | (304 | ) | |||||||
Unrealized loss on risk management |
(Note 12) | 969 | 317 | |||||||||
Unrealized foreign exchange loss |
(Note 5) | 18 | 39 | |||||||||
Accretion of asset retirement obligation |
(Note 8) | 9 | 6 | |||||||||
Gain on dispositions |
(Note 4) | | (34 | ) | ||||||||
Other |
39 | 20 | ||||||||||
Cash flow from continuing operations |
1,308 | 896 | ||||||||||
Cash flow from discontinued operations |
105 | 99 | ||||||||||
Cash flow |
1,413 | 995 | ||||||||||
Net change in other assets and liabilities |
2 | (5 | ) | |||||||||
Net change in non-cash working capital from continuing operations |
566 | 239 | ||||||||||
Net change in non-cash working capital from discontinued operations |
(55 | ) | 153 | |||||||||
1,926 | 1,382 | |||||||||||
INVESTING ACTIVITIES |
||||||||||||
Capital expenditures |
(Note 2) | (1,519 | ) | (1,271 | ) | |||||||
Proceeds on disposal of assets |
(Note 2) | 53 | 25 | |||||||||
Dispositions |
(Note 4) | | 288 | |||||||||
Equity investments |
| 40 | ||||||||||
Net change in investments and other |
19 | 11 | ||||||||||
Net change in non-cash working capital from continuing operations |
155 | 61 | ||||||||||
Discontinued operations |
(57 | ) | (252 | ) | ||||||||
(1,349 | ) | (1,098 | ) | |||||||||
FINANCING ACTIVITIES |
||||||||||||
Net repayment of revolving long-term debt |
(33 | ) | (8 | ) | ||||||||
Repayment of long-term debt |
(1 | ) | (95 | ) | ||||||||
Issuance of common shares |
(Note 9) | 101 | 111 | |||||||||
Purchase of common shares |
(Note 9) | (760 | ) | (218 | ) | |||||||
Dividends on common shares |
(44 | ) | (46 | ) | ||||||||
Other |
(2 | ) | (1 | ) | ||||||||
(739 | ) | (257 | ) | |||||||||
DEDUCT: FOREIGN EXCHANGE GAIN ON CASH AND CASH
EQUIVALENTS HELD IN FOREIGN CURRENCY |
(1 | ) | | |||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(161 | ) | 27 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
602 | 113 | ||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 441 | $ | 140 | ||||||||
See accompanying Notes to Consolidated Financial Statements.
14
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
1. | BASIS OF PRESENTATION |
The interim Consolidated Financial Statements include the accounts of EnCana Corporation and its subsidiaries (EnCana or the Company), and are presented in accordance with Canadian generally accepted accounting principles. The Company is in the business of exploration for, and production and marketing of, natural gas, crude oil and natural gas liquids, as well as natural gas storage, natural gas liquids processing and power generation operations.
The interim Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the annual audited Consolidated Financial Statements for the year ended December 31, 2004. The disclosures provided below are incremental to those included with the annual audited Consolidated Financial Statements. The interim Consolidated Financial Statements should be read in conjunction with the annual audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2004.
2. | SEGMENTED INFORMATION |
The Company has defined its continuing operations into the following segments:
| Upstream includes the Companys exploration for, and development and production of, natural gas, crude oil and natural gas liquids and other related activities. The majority of the Companys Upstream operations are located in Canada and the United States. International new venture exploration is mainly focused on opportunities in Africa, South America, the Middle East and Greenland. | |||
| Midstream & Market Optimization is conducted by the Midstream & Marketing division. Midstream includes natural gas storage, natural gas liquids processing and power generation. The Marketing groups primary responsibility is the sale of the Companys proprietary production. The results are included in the Upstream segment. Correspondingly, the Marketing groups also undertake market optimization activities which comprise third party purchases and sales of product that provide operational flexibility for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the Midstream & Market Optimization segment. | |||
| Corporate includes unrealized gains or losses recorded on derivative instruments. Once amounts are settled, the realized gains and losses are recorded in the operating segment to which the derivative instrument relates. |
Midstream & Market Optimization purchases substantially all of the Companys North American Upstream production. Transactions between business segments are based on market values and eliminated on consolidation. The tables in this note present financial information on an after eliminations basis.
Operations that have been discontinued are disclosed in Note 3.
15
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
2. | SEGMENTED INFORMATION (continued) |
Results of Continuing Operations (For the three months ended March 31)
Midstream & Market | ||||||||||||||||
Upstream | Optimization | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues, Net of Royalties |
$ | 2,106 | $ | 1,629 | $ | 1,527 | $ | 1,419 | ||||||||
Expenses |
||||||||||||||||
Production and mineral taxes |
87 | 54 | | | ||||||||||||
Transportation and selling |
131 | 127 | 5 | 8 | ||||||||||||
Operating |
292 | 241 | 83 | 78 | ||||||||||||
Purchased product |
| | 1,363 | 1,287 | ||||||||||||
Depreciation, depletion and amortization |
660 | 503 | 9 | 7 | ||||||||||||
Segment Income |
$ | 936 | $ | 704 | $ | 67 | $ | 39 | ||||||||
Corporate * | Consolidated | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues, Net of Royalties |
$ | (972 | ) | $ | (318 | ) | $ | 2,661 | $ | 2,730 | ||||||
Expenses |
||||||||||||||||
Production and mineral taxes |
| | 87 | 54 | ||||||||||||
Transportation and selling |
| | 136 | 135 | ||||||||||||
Operating |
(3 | ) | (2 | ) | 372 | 317 | ||||||||||
Purchased product |
| | 1,363 | 1,287 | ||||||||||||
Depreciation, depletion and amortization |
17 | 16 | 686 | 526 | ||||||||||||
Segment Income |
$ | (986 | ) | $ | (332 | ) | 17 | 411 | ||||||||
Administrative |
61 | 49 | ||||||||||||||
Interest, net |
100 | 79 | ||||||||||||||
Accretion of asset retirement obligation |
9 | 6 | ||||||||||||||
Foreign exchange loss |
31 | 59 | ||||||||||||||
Stock-based compensation |
4 | 5 | ||||||||||||||
Gain on dispositions |
| (34 | ) | |||||||||||||
205 | 164 | |||||||||||||||
Net (Loss) Earnings Before Income Tax |
(188 | ) | 247 | |||||||||||||
Income tax recovery |
(63 | ) | (79 | ) | ||||||||||||
Net (Loss) Earnings From Continuing Operations |
$ | (125 | ) | $ | 326 | |||||||||||
* | For the three months ended March 31, the unrealized loss on risk management is recorded in the Consolidated Statement of Earnings as follows (see also Note 12): |
2005 | 2004 | |||||||
Revenues,
Net of Royalties Corporate |
$ | (972 | ) | $ | (320 | ) | ||
Operating Expenses and Other Corporate |
(3 | ) | (3 | ) | ||||
Total Loss on Risk Management Continuing Operations |
$ | (969 | ) | $ | (317 | ) | ||
16
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
2. | SEGMENTED INFORMATION (continued) |
Results of Continuing Operations (For the three months ended March 31)
Upstream | Canada | United States | ||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues, Net of Royalties |
$ | 1,426 | $ | 1,221 | $ | 619 | $ | 358 | ||||||||
Expenses |
||||||||||||||||
Production and mineral taxes |
22 | 20 | 65 | 34 | ||||||||||||
Transportation and selling |
87 | 102 | 44 | 25 | ||||||||||||
Operating |
192 | 174 | 44 | 20 | ||||||||||||
Depreciation, depletion and amortization |
462 | 416 | 188 | 82 | ||||||||||||
Segment Income |
$ | 663 | $ | 509 | $ | 278 | $ | 197 | ||||||||
Other | Total Upstream | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues, Net of Royalties |
$ | 61 | $ | 50 | $ | 2,106 | $ | 1,629 | ||||||||
Expenses |
||||||||||||||||
Production and mineral taxes |
| | 87 | 54 | ||||||||||||
Transportation and selling |
| | 131 | 127 | ||||||||||||
Operating |
56 | 47 | 292 | 241 | ||||||||||||
Depreciation, depletion and amortization |
10 | 5 | 660 | 503 | ||||||||||||
Segment Income |
$ | (5 | ) | $ | (2 | ) | $ | 936 | $ | 704 | ||||||
Total Midstream | ||||||||||||||||||||||||
Midstream & Market Optimization | Midstream | Market Optimization | & Market Optimization | |||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Revenues |
$ | 566 | $ | 551 | $ | 961 | $ | 868 | $ | 1,527 | $ | 1,419 | ||||||||||||
Expenses |
||||||||||||||||||||||||
Transportation and selling |
| | 5 | 8 | 5 | 8 | ||||||||||||||||||
Operating |
73 | 71 | 10 | 7 | 83 | 78 | ||||||||||||||||||
Purchased product |
428 | 449 | 935 | 838 | 1,363 | 1,287 | ||||||||||||||||||
Depreciation, depletion and amortization |
9 | 7 | | | 9 | 7 | ||||||||||||||||||
Segment Income |
$ | 56 | $ | 24 | $ | 11 | $ | 15 | $ | 67 | $ | 39 | ||||||||||||
17
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
2. | SEGMENTED INFORMATION (continued) |
Upstream Geographic and Product Information (Continuing Operations) (For the three months ended March 31)
Produced Gas | ||||||||||||||||||||||||
Produced Gas | Canada | United States | Total | |||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Revenues, Net of Royalties |
$ | 1,133 | $ | 936 | $ | 564 | $ | 330 | $ | 1,697 | $ | 1,266 | ||||||||||||
Expenses |
||||||||||||||||||||||||
Production and mineral taxes |
16 | 15 | 59 | 31 | 75 | 46 | ||||||||||||||||||
Transportation and selling |
70 | 81 | 44 | 25 | 114 | 106 | ||||||||||||||||||
Operating |
121 | 101 | 44 | 20 | 165 | 121 | ||||||||||||||||||
Operating Cash Flow |
$ | 926 | $ | 739 | $ | 417 | $ | 254 | $ | 1,343 | $ | 993 | ||||||||||||
Oil & NGLs | ||||||||||||||||||||||||
Oil & NGLs | Canada | United States | Total | |||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Revenues, Net of Royalties |
$ | 293 | $ | 285 | $ | 55 | $ | 28 | $ | 348 | $ | 313 | ||||||||||||
Expenses |
||||||||||||||||||||||||
Production and mineral taxes |
6 | 5 | 6 | 3 | 12 | 8 | ||||||||||||||||||
Transportation and selling |
17 | 21 | | | 17 | 21 | ||||||||||||||||||
Operating |
71 | 73 | | | 71 | 73 | ||||||||||||||||||
Operating Cash Flow |
$ | 199 | $ | 186 | $ | 49 | $ | 25 | $ | 248 | $ | 211 | ||||||||||||
Other & Total Upstream | Other | Total Upstream | ||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues, Net of Royalties |
$ | 61 | $ | 50 | $ | 2,106 | $ | 1,629 | ||||||||
Expenses |
||||||||||||||||
Production and mineral taxes |
| | 87 | 54 | ||||||||||||
Transportation and selling |
| | 131 | 127 | ||||||||||||
Operating |
56 | 47 | 292 | 241 | ||||||||||||
Operating Cash Flow |
$ | 5 | $ | 3 | $ | 1,596 | $ | 1,207 | ||||||||
18
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
2. | SEGMENTED INFORMATION (continued) |
Capital Expenditures (Continuing Operations)
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Upstream |
||||||||
Canada |
$ | 1,044 | $ | 1,028 | ||||
United States |
412 | 210 | ||||||
Other Countries |
13 | 15 | ||||||
1,469 | 1,253 | |||||||
Midstream & Market Optimization |
44 | 9 | ||||||
Corporate |
6 | 9 | ||||||
Total |
$ | 1,519 | $ | 1,271 | ||||
In addition to the capital expenditures, during 2005, EnCana divested of mature conventional oil and natural gas assets and other property, plant and equipment for proceeds of $53 million (2004 - $25 million).
Property, Plant and Equipment and Total Assets
Property, Plant and Equipment | Total Assets | |||||||||||||||||||
As at | As at | |||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||||
Upstream |
$ | 22,806 | $ | 22,097 | $ | 26,653 | $ | 26,118 | ||||||||||||
Midstream & Market Optimization |
833 | 804 | 1,509 | 1,904 | ||||||||||||||||
Corporate |
231 | 239 | 1,032 | 1,412 | ||||||||||||||||
Assets of Discontinued Operations |
(Note 3) | 1,876 | 1,779 | |||||||||||||||||
Total |
$ | 23,870 | $ | 23,140 | $ | 31,070 | $ | 31,213 | ||||||||||||
19
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
3. | DISCONTINUED OPERATIONS |
At December 31, 2004, EnCana decided to divest of its Ecuador operations and such operations have been accounted for as discontinued operations. EnCanas Ecuador operations include the 100 percent working interest in the Tarapoa Block, majority operating interest in Blocks 14, 17 and Shiripuno, the non-operated economic interest in Block 15 and the 36.3 percent indirect equity investment in Oleoducto de Crudos Pesados (OCP) Ltd. (OCP), which is the owner of a crude oil pipeline in Ecuador that ships crude oil from the producing areas of Ecuador to an export marine terminal. The Company is a shipper on the OCP Pipeline and pays commercial rates for tariffs. The majority of the Companys crude oil produced in Ecuador is sold to a single marketing company. Payments are secured by letters of credit from a major financial institution which has a high quality investment grade credit rating.
On December 1, 2004, the Company completed the sale of its 100 percent interest in EnCana (U.K.) Limited for net cash consideration of approximately $2.1 billion. EnCanas U.K. operations included crude oil and natural gas interests in the U.K. central North Sea including the Buzzard, Scott and Telford oil fields, as well as other satellite discoveries and exploration licenses. A gain on sale of approximately $1.4 billion was recorded. Accordingly, these operations have been accounted for as discontinued operations.
Consolidated Statement of Earnings
The following table presents the effect of the discontinued operations in the Consolidated Statement of Earnings:
For the three months ended March 31 | ||||||||||||||||||||||||
Ecuador | United Kingdom | Total | ||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Revenues, Net of Royalties * |
$ | 191 | $ | 79 | $ | | $ | 41 | $ | 191 | $ | 120 | ||||||||||||
Expenses |
||||||||||||||||||||||||
Production and mineral taxes |
22 | 11 | | | 22 | 11 | ||||||||||||||||||
Transportation and selling |
15 | 19 | | 8 | 15 | 27 | ||||||||||||||||||
Operating |
28 | 30 | | 6 | 28 | 36 | ||||||||||||||||||
Depreciation, depletion and amortization |
| 65 | | 33 | | 98 | ||||||||||||||||||
Accretion of asset retirement obligation |
| | | 1 | | 1 | ||||||||||||||||||
Foreign exchange gain |
| | | (1 | ) | | (1 | ) | ||||||||||||||||
65 | 125 | | 47 | 65 | 172 | |||||||||||||||||||
Net Earnings (Loss) Before Income Tax |
126 | (46 | ) | | (6 | ) | 126 | (52 | ) | |||||||||||||||
Income tax expense (recovery) |
46 | (15 | ) | | (1 | ) | 46 | (16 | ) | |||||||||||||||
Net Earnings (Loss) From Discontinued Operations |
$ | 80 | $ | (31 | ) | $ | | $ | (5 | ) | $ | 80 | $ | (36 | ) | |||||||||
* | Revenues, net of royalties in Ecuador include $23 million of realized losses (2004 - $49 million) and $20 million of unrealized losses (2004 - $47 million) related to derivative financial instruments. |
20
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
3. | DISCONTINUED OPERATIONS (continued) |
Consolidated Balance Sheet
The impact of the discontinued operations in the Consolidated Balance Sheet is as follows:
As at | ||||||||||||||||||||||||||||
March 31, 2005 | December 31, 2004 | |||||||||||||||||||||||||||
United | United | |||||||||||||||||||||||||||
Ecuador | Kingdom | Total | Ecuador | Kingdom | Syncrude | Total | ||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 12 | $ | 13 | $ | 2 | $ | 12 | $ | | $ | 14 | ||||||||||||||
Accounts receivable and accrued revenues |
156 | 12 | 168 | 111 | 13 | | 124 | |||||||||||||||||||||
Risk management |
| | | 3 | | | 3 | |||||||||||||||||||||
Inventories |
20 | | 20 | 15 | | | 15 | |||||||||||||||||||||
177 | 24 | 201 | 131 | 25 | | 156 | ||||||||||||||||||||||
Property, plant and equipment, net |
1,341 | | 1,341 | 1,295 | | | 1,295 | |||||||||||||||||||||
Investments and other assets |
334 | | 334 | 328 | | | 328 | |||||||||||||||||||||
$ | 1,852 | $ | 24 | $ | 1,876 | $ | 1,754 | $ | 25 | $ | | $ | 1,779 | |||||||||||||||
Liabilities |
||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 84 | $ | 30 | $ | 114 | $ | 61 | $ | 32 | $ | 3 | $ | 96 | ||||||||||||||
Income tax payable |
105 | 1 | 106 | 101 | | | 101 | |||||||||||||||||||||
Risk management |
92 | | 92 | 72 | | | 72 | |||||||||||||||||||||
281 | 31 | 312 | 234 | 32 | 3 | 269 | ||||||||||||||||||||||
Asset retirement obligation |
22 | | 22 | 22 | | | 22 | |||||||||||||||||||||
Future income taxes |
99 | (1 | ) | 98 | 80 | 11 | | 91 | ||||||||||||||||||||
402 | 30 | 432 | 336 | 43 | 3 | 382 | ||||||||||||||||||||||
Net Assets of Discontinued Operations |
$ | 1,450 | $ | (6 | ) | $ | 1,444 | $ | 1,418 | $ | (18 | ) | $ | (3 | ) | $ | 1,397 | |||||||||||
Contingencies
In Ecuador, a subsidiary of EnCana has a 40 percent non-operated economic interest in relation to Block 15 pursuant to a contract with a subsidiary of Occidental Petroleum Corporation. In its 2004 filings with Securities regulatory authorities, Occidental Petroleum Corporation indicated that its subsidiary had received formal notification from Petroecuador, the state oil company of Ecuador, initiating proceedings to determine if the subsidiary had violated the Hydrocarbons Law and its Participation Contract for Block 15 with Petroecuador and whether such violations constitute grounds for terminating the Participation Contract.
In its filings, Occidental Petroleum Corporation indicated that it believes it has complied with all material obligations under the Participation Contract and that any termination of the Participation Contract by Ecuador based upon these stated allegations would be unfounded and would constitute an unlawful expropriation under international treaties.
In addition to the above, the Company is proceeding with its arbitration related to value-added tax (VAT) owed to the Company and is in discussions related to certain income tax matters related to interest deductibility in Ecuador.
21
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
4. | DISPOSITIONS |
In March 2004, the Company sold its equity investment in a well servicing company for approximately $44 million, recording a pre-tax gain on sale of $34 million.
On February 18, 2004, the Company sold its 53.3 percent interest in Petrovera Resources (Petrovera) for approximately $288 million, including working capital adjustments. In order to facilitate the transaction, the Company purchased the 46.7 percent interest of its partner for approximately $253 million, including working capital adjustments, and then sold the 100 percent interest in Petrovera for a total of approximately $541 million, including working capital adjustments. In accordance with full cost accounting for oil and gas activities, proceeds were credited to property, plant and equipment.
5. | FOREIGN EXCHANGE LOSS |
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Unrealized Foreign Exchange Loss on Translation of U.S. Dollar Debt Issued in Canada |
$ | 18 | $ | 39 | ||||
Realized Foreign Exchange Losses |
13 | 20 | ||||||
$ | 31 | $ | 59 | |||||
6. | INCOME TAXES |
The provision for income taxes is as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Current |
||||||||
Canada |
$ | 186 | $ | 222 | ||||
United States |
32 | 8 | ||||||
Other |
7 | (5 | ) | |||||
Total Current Tax |
225 | 225 | ||||||
Future |
(288 | ) | (195 | ) | ||||
Future Tax Rate Reductions |
| (109 | ) | |||||
Total Future Tax |
(288 | ) | (304 | ) | ||||
$ | (63 | ) | $ | (79 | ) | |||
The following table reconciles income taxes calculated at the Canadian statutory rate with the actual income taxes:
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Net Earnings Before Income Tax |
$ | (188 | ) | $ | 247 | |||
Canadian Statutory Rate |
37.9 | % | 39.1 | % | ||||
Expected Income Tax |
(71 | ) | 97 | |||||
Effect on Taxes Resulting from: |
||||||||
Non-deductible Canadian crown payments |
42 | 52 | ||||||
Canadian resource allowance |
(48 | ) | (60 | ) | ||||
Canadian resource allowance on unrealized risk management losses |
18 | 17 | ||||||
Statutory and other rate differences |
(15 | ) | (13 | ) | ||||
Effect of tax rate changes |
| (109 | ) | |||||
Non-taxable capital gains |
5 | 7 | ||||||
Previously unrecognized capital losses |
| 13 | ||||||
Tax basis retained on dispositions |
| (80 | ) | |||||
Large corporations tax |
4 | 4 | ||||||
Other |
2 | (7 | ) | |||||
$ | (63 | ) | $ | (79 | ) | |||
Effective Tax Rate |
33.5 | % | (32.0 | %) | ||||
22
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
7. | LONG-TERM DEBT |
As at | As at | |||||||
March 31, | December 31, | |||||||
2005 | 2004 | |||||||
Canadian Dollar Denominated Debt |
||||||||
Revolving credit and term loan borrowings |
$ | 1,548 | $ | 1,515 | ||||
Unsecured notes and debentures |
1,302 | 1,309 | ||||||
2,850 | 2,824 | |||||||
U.S. Dollar Denominated Debt |
||||||||
Revolving credit and term loan borrowings |
326 | 399 | ||||||
Unsecured notes and debentures |
4,640 | 4,641 | ||||||
4,966 | 5,040 | |||||||
Increase in Value of Debt Acquired * |
66 | 66 | ||||||
Current Portion of Long-Term Debt |
(187 | ) | (188 | ) | ||||
$ | 7,695 | $ | 7,742 | |||||
- |
* | Certain of the notes and debentures of EnCana were acquired in business combinations and were accounted for at their fair value at the dates of acquisition. The difference between the fair value and the principal amount of the debt is being amortized over the remaining life of the outstanding debt acquired, approximately 22 years. |
8. | ASSET RETIREMENT OBLIGATION |
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:
As at | As at | |||||||
March 31, | December 31, | |||||||
2005 | 2004 | |||||||
Asset Retirement Obligation, Beginning of Year |
$ | 611 | $ | 383 | ||||
Liabilities Incurred |
30 | 98 | ||||||
Liabilities Settled |
(5 | ) | (16 | ) | ||||
Liabilities Disposed |
| (35 | ) | |||||
Change in Estimated Future Cash Flows |
(3 | ) | 124 | |||||
Accretion Expense |
9 | 22 | ||||||
Other |
(3 | ) | 35 | |||||
Asset Retirement Obligation, End of Period |
$ | 639 | $ | 611 | ||||
23
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
9. | SHARE CAPITAL |
March 31, 2005 | December 31, 2004 | |||||||||||||||
(millions) | Number | Amount | Number | Amount | ||||||||||||
Common Shares Outstanding, Beginning of Year |
450.3 | $ | 5,299 | 460.6 | $ | 5,305 | ||||||||||
Shares Issued under Option Plans |
2.8 | 101 | 9.7 | 281 | ||||||||||||
Shares Repurchased |
(12.3 | ) | (190 | ) | (20.0 | ) | (287 | ) | ||||||||
Common Shares Outstanding, End of Period |
440.8 | $ | 5,210 | 450.3 | $ | 5,299 | ||||||||||
During the quarter, the Company purchased 12,255,029 Common Shares for total consideration of approximately $760 million. Of the amount paid, $190 million was charged to Share capital, $10 million was charged to Paid in surplus and $560 million was charged to Retained earnings. Included in the above are 1.3 million Common Shares which have been repurchased by a wholly owned Trust and are held for issuance upon vesting of units under EnCanas Performance Share Unit plan (see Note 10).
On October 26, 2004, the Company received regulatory approval for a new Normal Course Issuer Bid commencing October 29, 2004. Under this bid, the Company may purchase for cancellation up to 23,114,500 of its Common Shares, representing five percent of the approximately 462.29 million Common Shares outstanding as of the filing of the bid on October 22, 2004. On February 4, 2005, the Company received regulatory approval for an amendment to the Normal Course Issuer Bid which increases the number of shares available for purchase from five percent of the issued and outstanding Common Shares to ten percent of the public float of Common Shares (a total of approximately 46.1 million Common Shares). The current Normal Course Issuer Bid expires on October 28, 2005.
The Company has stock-based compensation plans that allow employees and directors to purchase Common Shares of the Company. Option exercise prices approximate the market price for the Common Shares on the date the options were issued. Options granted under the plans are generally fully exercisable after three years and expire five years after the grant date. Options granted under predecessor and/or related company replacement plans expire up to ten years from the date the options were granted.
The following tables summarize the information about options to purchase Common Shares that do not have Tandem Share Appreciation Rights (TSARs) attached to them at March 31, 2005. Information related to TSARs is included in Note 10.
Weighted | ||||||||
Stock | Average | |||||||
Options | Exercise | |||||||
(millions) | Price (C$) | |||||||
Outstanding, Beginning of Year |
18.1 | 46.29 | ||||||
Exercised |
(2.8 | ) | 44.34 | |||||
Forfeited |
(0.1 | ) | 43.54 | |||||
Outstanding, End of Period |
15.2 | 46.67 | ||||||
Exercisable, End of Period |
8.0 | 45.43 | ||||||
Outstanding Options | Exercisable Options | |||||||||||||||||||
Weighted | ||||||||||||||||||||
Number of | Average | Weighted | Number of | Weighted | ||||||||||||||||
Options | Remaining | Average | Options | Average | ||||||||||||||||
Outstanding | Contractual | Exercise | Outstanding | Exercise | ||||||||||||||||
Range of Exercise Price | (millions) | Life (years) | Price (C$) | (millions) | Price (C$) | |||||||||||||||
20.00 to 24.99 |
0.5 | 3.7 | 22.84 | 0.5 | 22.84 | |||||||||||||||
25.00 to 29.99 |
0.2 | 1.9 | 26.20 | 0.2 | 26.20 | |||||||||||||||
30.00 to 43.99 |
0.3 | 1.6 | 40.00 | 0.3 | 39.61 | |||||||||||||||
44.00 to 53.00 |
14.2 | 2.2 | 48.01 | 7.0 | 47.92 | |||||||||||||||
15.2 | 2.3 | 46.67 | 8.0 | 45.43 | ||||||||||||||||
EnCana has recorded stock-based compensation expense in the Consolidated Statement of Earnings for stock options granted to employees and directors in 2003 using the fair-value method. Stock options granted in 2004 and 2005 have an associated Tandem Share Appreciation Right attached. Compensation expense has not been recorded in the Consolidated Statement of Earnings related to stock options granted prior to 2003. If the Company had applied the fair-value method to options granted prior to 2003, pro forma Net Earnings and Net Earnings per Common Share for the three months ended March 31, 2005 would be unchanged (2004 - $281 million; $0.61 per common share - basic; $0.60 per common share - diluted).
24
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
10. | COMPENSATION PLANS |
The tables below outline certain information related to EnCanas compensation plans at March 31, 2005. Additional information is contained in Note 16 of the Companys annual audited Consolidated Financial Statements for the year ended December 31, 2004.
A) | Pensions |
The following table summarizes the net benefit plan expense:
Three Month Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Current Service Cost |
$ | 2 | $ | 2 | ||||
Interest Cost |
3 | 3 | ||||||
Expected Return on Plan Assets |
(3 | ) | (3 | ) | ||||
Amortization of Net Actuarial Loss |
1 | 1 | ||||||
Amortization of Transitional Obligation |
(1 | ) | (1 | ) | ||||
Amortization of Past Service Cost |
1 | | ||||||
Expense for Defined Contribution Plan |
5 | 3 | ||||||
Net Benefit Plan Expense |
$ | 8 | $ | 5 | ||||
The Company previously disclosed in its annual audited Consolidated Financial Statements for the year ended December 31, 2004 that it expected to contribute $6 million to its defined benefit pension plans in 2005. At March 31, 2005, no contributions have been made.
B) | Share Appreciation Rights (SARs) |
The following table summarizes the information about SARs at March 31, 2005:
Weighted | ||||||||
Average | ||||||||
Outstanding | Exercise | |||||||
SAR's | Price | |||||||
Canadian Dollar Denominated (C$) |
||||||||
Outstanding, Beginning of Year |
465,255 | 36.61 | ||||||
Exercised |
(268,558 | ) | 29.81 | |||||
Outstanding, End of Period |
196,697 | 45.89 | ||||||
Exercisable, End of Period |
196,697 | 45.89 | ||||||
U.S. Dollar Denominated (US$) |
||||||||
Outstanding, Beginning of Year |
385,930 | 28.80 | ||||||
Exercised |
(73,760 | ) | 28.99 | |||||
Outstanding, End of Period |
312,170 | 28.75 | ||||||
Exercisable, End of Period |
312,170 | 28.75 | ||||||
During the quarter, EnCana recorded compensation costs of $9 million related to the outstanding SARs (2004 - $2 million).
25
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
10. | COMPENSATION PLANS (continued) |
C) | Tandem Share Appreciation Rights (TSARs) (continued) |
The following table summarizes the information about Tandem SARs at March 31, 2005
Weighted | ||||||||
Average | ||||||||
Outstanding | Exercise | |||||||
TSARs | Price | |||||||
Canadian Dollar Denominated (C$) |
||||||||
Outstanding, Beginning of Year |
867,500 | 55.54 | ||||||
Granted |
3,262,806 | 76.51 | ||||||
Exercised |
(12,300 | ) | 52.99 | |||||
Forfeited |
(69,620 | ) | 60.59 | |||||
Outstanding, End of Period |
4,048,386 | 72.35 | ||||||
Exercisable, End of Period |
38,595 | 53.85 | ||||||
During the quarter, EnCana recorded compensation costs of $5 million related to the outstanding TSARs (2004 nil).
D) | Deferred Share Units (DSUs) |
The following table summarizes the information about DSUs at March 31, 2005
Weighted | ||||||||
Average | ||||||||
Outstanding | Exercise | |||||||
DSUs | Price | |||||||
Canadian Dollar Denominated (C$) |
||||||||
Outstanding, Beginning of Year |
375,306 | 49.61 | ||||||
Granted, Directors |
23,806 | 85.43 | ||||||
Units, in Lieu of Dividends |
562 | 85.43 | ||||||
Outstanding, End of Period |
399,674 | 51.79 | ||||||
Exercisable, End of Period |
318,208 | 55.05 | ||||||
During the quarter, EnCana recorded compensation costs of $5 million related to the outstanding DSUs (2004 $3 million).
E) | Performance Share Units (PSUs) |
The following table summarizes the information about PSUs at March 31, 2005:
Weighted | ||||||||
Average | ||||||||
Outstanding | Exercise | |||||||
PSUs | Price | |||||||
Canadian Dollar Denominated (C$) |
||||||||
Outstanding, Beginning of Year |
1,647,103 | 53.42 | ||||||
Granted |
852,941 | 76.51 | ||||||
Forfeited |
(14,277 | ) | 56.48 | |||||
Outstanding, End of Period |
2,485,767 | 61.32 | ||||||
Exercisable, End of Period |
| | ||||||
U.S. Dollar Denominated (US$) |
||||||||
Outstanding, Beginning of Year |
224,615 | 41.12 | ||||||
Granted |
193,193 | 61.95 | ||||||
Forfeited |
(8,163 | ) | 55.07 | |||||
Outstanding, End of Period |
409,645 | 50.66 | ||||||
Exercisable, End of Period |
| | ||||||
During the quarter, EnCana recorded compensation costs of $14 million related to the outstanding PSUs (2004 nil).
At March 31, 2005, EnCana has approximately 1.3 million Common Shares held in trust for issuance upon vesting of the PSUs.
26
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
11. | PER SHARE AMOUNTS |
The following table summarizes the Common Shares used in calculating Net Earnings per Common Share:
Three Months Ended | ||||||||
March 31, | ||||||||
(millions) | 2005 | 2004 | ||||||
Weighted Average Common Shares Outstanding Basic |
445.9 | 460.9 | ||||||
Effect of Dilutive Securities |
8.6 | 6.2 | ||||||
Weighted Average Common Shares Outstanding Diluted |
454.5 | 467.1 | ||||||
12. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
As discussed in Note 2 to the annual audited Consolidated Financial Statements for the year ended December 31, 2004, on January 1, 2004, the fair value of all outstanding financial instruments that were not considered accounting hedges was recorded in the Consolidated Balance Sheet with an offsetting net deferred loss amount (the transition amount). The transition amount is recognized into net earnings over the life of the related contracts. Changes in fair value after that time are recorded in the Consolidated Balance Sheet with an associated unrealized gain or loss recorded in net earnings. The estimated fair value of all derivative instruments is based on quoted market prices or, in their absence, third party market indications and forecasts.
At March 31, 2005, a net unrealized gain remains to be recognized over the next four years as follows:
Unrealized | ||||
Gain (Loss) | ||||
2005 |
||||
Three months ended June 30, 2005 |
$ | 14 | ||
Three months ended September 30, 2005 |
9 | |||
Three months ended December 31, 2005 |
9 | |||
Total remaining to be recognized in 2005 |
$ | 32 | ||
2006 |
$ | 24 | ||
2007 |
15 | |||
2008 |
1 | |||
Total to be recognized in 2006 through to 2008 |
$ | 40 | ||
Total to be recognized |
$ | 72 | ||
Total to be recognized Continuing Operations |
$ | 73 | ||
Total to be recognized Discontinued Operations |
(1 | ) | ||
$ | 72 | |||
27
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
12. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) |
The following table presents a reconciliation of the change in the unrealized amounts from January 1, 2005 to March 31, 2005:
Net Deferred | ||||||||||||
Amounts | Total | |||||||||||
Recognized | Fair Market | Unrealized | ||||||||||
on Transition | Value | Gain (Loss) | ||||||||||
Fair Value of Contracts, Beginning of Year |
$ | (72 | ) | $ | (189 | ) | ||||||
Change in Fair Value of Remaining Contracts in Place at Transition |
| (2 | ) | $ | (2 | ) | ||||||
Fair Value of Contracts Entered into Since January 1, 2004 |
| (987 | ) | (987 | ) | |||||||
Fair Value of Contracts Outstanding |
$ | (72 | ) | $ | (1,178 | ) | $ | (989 | ) | |||
Unamortized Premiums Paid on Collars and Options |
90 | |||||||||||
Fair Value of Contracts Outstanding and Premiums Paid, End of Period |
$ | (1,088 | ) | |||||||||
Amounts Allocated to Continuing Operations |
$ | (73 | ) | $ | (996 | ) | $ | (969 | ) | |||
Amounts Allocated to Discontinued Operations |
1 | (92 | ) | (20 | ) | |||||||
$ | (72 | ) | $ | (1,088 | ) | $ | (989 | ) | ||||
The total realized loss recognized in net earnings from continuing operations for the three months ended March 31, 2005 was $10 million ($15 million, before tax).
At March 31, 2005, the net deferred amounts recognized on transition and the risk management amounts are recorded in the Consolidated Balance Sheet as follows:
As at | ||||
March 31, 2005 | ||||
Remaining Deferred Amounts Recognized on Transition |
||||
Accounts receivable and accrued revenues |
$ | 3 | ||
Investments and other assets |
1 | |||
Accounts payable and accrued liabilities |
40 | |||
Other liabilities |
37 | |||
Net Deferred Gain Continuing Operations |
$ | 73 | ||
Net Deferred Loss Discontinued Operations |
(1 | ) | ||
$ | 72 | |||
Risk Management |
||||
Current asset |
$ | 159 | ||
Long-term asset |
72 | |||
Current liability |
826 | |||
Long-term liability |
401 | |||
Net Risk Management Liability Continuing Operations |
$ | (996 | ) | |
Net Risk Management Liability Discontinued Operations |
(92 | ) | ||
$ | (1,088 | ) | ||
A summary of all unrealized estimated fair value financial positions is as follows:
As at | ||||
March 31, 2005 | ||||
Commodity Price Risk |
||||
Natural gas |
$ | (739 | ) | |
Crude oil |
(285 | ) | ||
Power |
5 | |||
Interest Rate Risk |
23 | |||
Total Fair Value Positions Continuing Operations |
$ | (996 | ) | |
Total Fair Value Positions Discontinued Operations |
(92 | ) | ||
$ | (1,088 | ) | ||
Information with respect to power and interest rate risk contracts in place at December 31, 2004 is disclosed in Note 17 to the Companys annual audited Consolidated Financial Statements. No significant new contracts have been entered into as at March 31, 2005.
28
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
12. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) |
Natural Gas
At March 31, 2005, the Companys gas risk management activities from financial contracts had an unrealized loss of $798 million and a fair market value position of $(739) million. The contracts were as follows:
Notional | ||||||||||||||||||||
Volumes | Fair Market | |||||||||||||||||||
(MMcf/d) | Term | Average Price | Value | |||||||||||||||||
Sales Contracts |
||||||||||||||||||||
Fixed Price Contracts |
||||||||||||||||||||
NYMEX Fixed Price |
485 | 2005 | 6.43 | US$/Mcf | $ | (194 | ) | |||||||||||||
Colorado Interstate Gas (CIG) |
114 | 2005 | 4.87 | US$/Mcf | (68 | ) | ||||||||||||||
Other |
110 | 2005 | 5.21 | US$/Mcf | (65 | ) | ||||||||||||||
NYMEX Fixed Price |
525 | 2006 | 5.66 | US$/Mcf | (373 | ) | ||||||||||||||
Colorado Interstate Gas (CIG) |
100 | 2006 | 4.44 | US$/Mcf | (87 | ) | ||||||||||||||
Other |
171 | 2006 | 4.85 | US$/Mcf | (144 | ) | ||||||||||||||
Collars and Other Options |
||||||||||||||||||||
Purchased NYMEX Put Options |
901 | 2005 | 5.47 | US$/Mcf | (53 | ) | ||||||||||||||
NYMEX 3-Way Call Spread |
180 | 2005 | 5.00/6.69/7.69 | US$/Mcf | (39 | ) | ||||||||||||||
Purchased NYMEX Put Options |
210 | 2006 | 5.00 | US$/Mcf | (15 | ) | ||||||||||||||
Basis Contracts |
||||||||||||||||||||
Fixed NYMEX to AECO Basis |
881 | 2005 | (0.66 | ) | US$/Mcf | 54 | ||||||||||||||
Fixed NYMEX to Rockies Basis |
254 | 2005 | (0.48 | ) | US$/Mcf | 21 | ||||||||||||||
Other |
474 | 2005 | (0.49 | ) | US$/Mcf | 7 | ||||||||||||||
Fixed NYMEX to AECO Basis |
703 | 2006 | (0.65 | ) | US$/Mcf | 54 | ||||||||||||||
Fixed NYMEX to Rockies Basis |
312 | 2006 | (0.57 | ) | US$/Mcf | 18 | ||||||||||||||
Fixed NYMEX to CIG Basis |
279 | 2006 | (0.83 | ) | US$/Mcf | (5 | ) | |||||||||||||
Other |
182 | 2006 | (0.36 | ) | US$/Mcf | 3 | ||||||||||||||
Fixed Rockies to CIG Basis |
12 | 2007 | (0.10 | ) | US$/Mcf | | ||||||||||||||
Fixed NYMEX to AECO Basis |
345 | 2007-2008 | (0.65 | ) | US$/Mcf | 36 | ||||||||||||||
Fixed NYMEX to Rockies Basis |
252 | 2007-2008 | (0.58 | ) | US$/Mcf | 23 | ||||||||||||||
Fixed NYMEX to CIG Basis |
115 | 2007-2009 | (0.69 | ) | US$/Mcf | 6 | ||||||||||||||
Purchase Contracts |
||||||||||||||||||||
Fixed Price Contracts |
||||||||||||||||||||
Waha Purchase |
27 | 2005 | 5.90 | US$/Mcf | 11 | |||||||||||||||
Waha Purchase |
23 | 2006 | 5.32 | US$/Mcf | 15 | |||||||||||||||
(795 | ) | |||||||||||||||||||
Other Financial Positions (1) |
(3 | ) | ||||||||||||||||||
Total Unrealized Loss on Financial Contracts |
(798 | ) | ||||||||||||||||||
Unamortized Premiums Paid on Options |
59 | |||||||||||||||||||
Total Fair Value Positions |
$ | (739 | ) | |||||||||||||||||
(1) | Other financial positions are part of the ongoing operations of the Companys proprietary production management and gas storage optimization activities. |
29
Interim Report
For the period ended March 31, 2005
EnCana
Corporation
Notes
to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
12. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued) |
Crude Oil
At March 31, 2005, the Companys oil risk management activities from financial contracts had an unrealized loss of $408 million and a fair market value position of $(377) million. The contracts were as follows:
Notional | ||||||||||||||||
Volumes | Average Price | Fair Market | ||||||||||||||
(bbl/d) | Term | (US$/bbl) | Value | |||||||||||||
Fixed WTI NYMEX Price |
41,000 | 2005 | 28.41 | $ | (311 | ) | ||||||||||
Costless 3-Way Put Spread |
9,000 | 2005 | 20.00/25.00/28.78 | (66 | ) | |||||||||||
Unwind WTI NYMEX Fixed Price |
(4,500 | ) | 2005 | 35.90 | 25 | |||||||||||
Purchased WTI NYMEX Call Options |
(38,000 | ) | 2005 | 49.76 | 77 | |||||||||||
Purchased WTI NYMEX Put Options |
35,000 | 2005 | 40.00 | (16 | ) | |||||||||||
Fixed WTI NYMEX Price |
15,000 | 2006 | 34.56 | (109 | ) | |||||||||||
Purchased WTI NYMEX Put Options |
22,000 | 2006 | 27.36 | (7 | ) | |||||||||||
(407 | ) | |||||||||||||||
Other Financial Positions (1) |
(1 | ) | ||||||||||||||
Total Unrealized Loss on Financial Contracts |
(408 | ) | ||||||||||||||
Unamortized Premiums Paid on Options |
31 | |||||||||||||||
Total Fair Value Positions |
$ | (377 | ) | |||||||||||||
Total Fair Value Positions Continuing Operations |
(285 | ) | ||||||||||||||
Total Fair Value Positions Discontinued Operations |
(92 | ) | ||||||||||||||
$ | (377 | ) | ||||||||||||||
(1) | Other financial positions are part of the ongoing operations of the Companys proprietary production management. |
13. | RECLASSIFICATION |
Certain information provided for prior periods has been reclassified to conform to the presentation adopted in 2005.
30