Alberta-based Encana's Q3 net earnings drop 80% year-over-year to US$120M as sales drop 3% to US$2.35B, decline in Canadian dollar causes currency losses

CALGARY, Alberta , October 20, 2011 (press release) – Daily natural gas and liquids production grows 6 percent per share

Liquids production targets 80,000 bbls/d by 2015 from NGLs extraction

Financial and operating performance on track to achieve 2011 guidance

Encana Corporation (TSX, NYSE: ECA) continued to deliver strong operational performance and solid financial results in the third quarter of 2011, growing natural gas and liquids production by 6 percent per share from the third quarter of 2010. Encana generated third quarter cash flow of US$1.2 billion, or $1.57 per share, and operating earnings were $171 million, or 23 cents per share. Encana’s commodity price hedges contributed $146 million in realized after-tax gains, or 20 cents per share, to cash flow. Total production in the third quarter was approximately 3.51 billion cubic feet of gas equivalent per day (Bcfe/d), an increase of 190 million cubic feet equivalent per day (MMcfe/d) from the same quarter of 2010.

“First-time Adoption of International Financial Reporting Standards”

“Encana delivered another excellent quarter in every aspect of its operations, achieving solid cash flow and operating earnings. Our third-quarter production growth of 6 percent per share puts us in line to achieve our 2011 targeted growth range of 5 to 7 percent per share. We are highly focused on core initiatives that will strengthen our financial capacity and position us for future growth. Through the expanded application of our resource play hub model – highly integrated and optimized production facilities that continually improve efficiencies – we continue to lower our capital and operating cost structures. The competitive sale of select midstream assets frees up capital for reinvestment in higher-return upstream projects. Recent transactions include agreements to sell a portion of our Piceance midstream assets and our interest in the Cabin Gas Plant for a total of about $800 million, and we are well advanced in the sale process for our midstream assets in the Cutbank Ridge area. The sales process for our North Texas Barnett shale assets is also moving ahead,” said Randy Eresman, Encana’s President & Chief Executive Officer.

Expanding natural gas liquids (NGLs) extraction and exploration on liquids-rich lands across North America
Encana is taking a comprehensive dual approach to growing liquids production – firstly, through extensive expansion of NGLs extraction from the company’s liquid-rich natural gas production and, secondly, through an aggressive grassroots exploration program targeting oil and liquids-rich natural gas plays across Encana’s extensive North American land base.

Deep Basin extraction projects target an additional 55,000 barrels per day (bbls/d) of NGLs by 2015
In the Deep Basin of Alberta and British Columbia, Encana has significantly expanded its NGLs extraction initiatives. The first step in this plan is scheduled to start up in December with the addition of about 5,000 bbls/d of NGLs production from expanded facilities at the Musreau natural gas processing plant. From its existing development plays, Encana expects to grow NGLs production by about 55,000 bbls/d by 2015, which would take the company’s total liquids production from the current level of about 25,000 bbls/d to about 80,000 bbls/d. Beyond this, Encana is pursuing extensive organic growth through a diverse exploration program on the company’s liquids-prone lands across North America.

Organic growth through promising liquids and oil exploration program
Encana is drilling about a dozen wells on five prospective liquids-rich and oil plays from Alberta to Mississippi – the Duvernay Shale in Alberta, the Niobrara formation in the DJ and Piceance basins in Colorado, the Collingwood Shale in Michigan and the Tuscaloosa Marine Shale in Mississippi. Early well results are encouraging and ongoing exploration drilling over the next few months will help define the scope and potential of these promising liquids-rich and oil opportunities and assist in determining the company’s capital investment allocation in 2012.

“The tremendous operational success we’ve achieved by applying our extensive technical expertise in long-reach horizontal drilling and completions in natural gas reservoirs is highly transferable to growing production from liquids-prone reservoirs. We have a well-established methodology for extracting value from all our production, developing resource plays from the ground up through a low cost entry approach and through our relentless focus on lowering our cost structures. Over the next few years we expect to significantly increase liquids production in our portfolio,” Eresman said.

Expanding joint ventures; Kitimat LNG project advancing
Encana continues to attract new third-party investment to improve project returns through the acceleration of the development of the company’s enormous resource potential. In July, Encana expanded its Horn River farm-out agreement with the Canadian subsidiary of Korea Gas Corporation (KOGAS) at Kiwigana in northeast British Columbia. KOGAS agreed to invest a further C$185 million in approximately 20,000 additional acres of our promising Horn River lands. The original C$565 million, three-year agreement with KOGAS has enabled Encana to accelerate its drilling program in both the Kiwigana area of Horn River and at West Cutbank. In the Kiwigana area, drilling of the first well pad has concluded and, following completions work this coming winter, first natural gas production is expected in the spring of 2012. In the Kitimat liquefied natural gas (LNG) export project, progress continues as Canada’s National Energy Board last week approved a licence to export 1.4 billion cubic feet per day (Bcf/d) of natural gas for 20 years. The Kitimat LNG engineering study is expected in the new year and the partners are discussing long-term sales agreements with Pacific Rim customers.

Efficiency gains with long-reach Louisiana wells
At Haynesville, drilling and completions efficiencies continue to improve in both the company’s resource play hub development model and its remaining lease retention program. Encana received regulatory approval to drill additional long-reach horizontal wells in North Louisiana – a well-established technique that very effectively reduces supply costs and the number of wells required to produce an equivalent volume of natural gas. In the third quarter, Encana drilled two horizontal wells in the Sabine area of East Texas and two in the Haynesville in Louisiana. These wells are among the longest horizontal wells drilled in the region, averaging a horizontal length of 7,500 feet. One of the Haynesville wells surpassed 8,000 feet lateral length and a Sabine well reached a record measured depth of 22,350 feet. Each well is expected to have more than 30 completion stages – work that is planned for the fourth quarter of 2011.

Focusing on highest return projects and lowering costs
“Our hedging program continues to stabilize cash flow during this period of lower prices. We are aligning our growth rate more closely with the company’s capacity to generate cash flow and, over the next year, we are planning to direct an increasing portion of our investment to grow our oil and NGLs production from several projects on our liquids-rich lands. In all of these efforts, we focus on investing in our highest return projects. We have also been successful in attracting premium joint-venture partners to accelerate the value recognition of our enormous resource potential. We balance capital investment for long-term growth capacity within the reality of near-term market uncertainty currently caused by the supply-demand imbalance in the North American natural gas industry. As always, operational excellence to achieve the lowest cost production and maximize margins is at the forefront of all our efforts to enhance the long-term value of every Encana share,” Eresman said.

Encana reports in U.S. dollars unless otherwise noted. Production, sales and reserves estimates are reported on an after-royalties basis, unless otherwise noted. Per share amounts for cash flow and earnings are on a diluted basis. As of January 1, 2011, Encana prepares its interim consolidated financial statements and comparative information in accordance with International Financial Reporting Standards (IFRS) 1, “First-time Adoption of International Financial Reporting Standards”, and with International Accounting Standard 34, “Interim Financial Reporting,” as issued by the International Accounting Standards Board. Prior to 2011, Encana’s financial statements were prepared in accordance with Canadian generally accepted accounting principles (previous GAAP). Reconciliations between previous GAAP and IFRS financial information can be found in the consolidated financial statements available on the company’s website at Additional supplemental information will be posted on Encana’s website. Encana defines supply cost as the flat NYMEX natural gas price that yields an internal rate of return of 9 percent after tax, and does not include land costs.

Recent Developments

On October 14, 2011, Encana announced plans that will see NGLs extraction from the Resthaven natural gas processing plant increase from about 1,000 bbls/d to about 12,000 bbls/d. The growth is a result of Encana’s agreement with a midstream company, which will invest about C$230 million to expand the processing and liquids extraction capacity at Resthaven in west central Alberta.
On October 7, 2011, Encana announced that it has reached an agreement to sell its interest in the Cabin Gas Plant in the Horn River Basin of northeast British Columbia to Enbridge Inc. for approximately C$220 million. The sale is subject to regulatory approvals and customary closing conditions and is expected to close in December 2011.
Canada’s National Energy Board recently approved a licence for the Kitimat LNG project, owned 30 percent by Encana, to export the equivalent of 1.4 Bcf/d of natural gas for 20 years from the planned terminal on Canada’s West Coast.

Strong natural gas production growth from key resource plays
Total production in the third quarter of 2011 was 3.51 Bcfe/d, up about 6 percent per share from 3.32 Bcfe/d in the third quarter of 2010. Natural gas production was also up 6 percent per share to 3.37 Bcf/d compared to 3.18 Bcf/d in the third quarter of 2010. Encana’s third quarter production growth was led by strong increases of about 70 percent in Haynesville, 13 percent in CBM and 16 percent in Greater Sierra, which includes Horn River where production more than tripled to about 100 MMcfe/d.

Encana's risk management program continues to supplement revenue and stabilize cash flow
As a result of commodity price hedging in the third quarter, Encana's before-tax cash flow was $216 million higher than what the company would have generated without its hedging program. Since 2006, Encana's commodity price hedging program has resulted in about $7.9 billion of before-tax cash flow in excess of what would have been generated had the company not implemented a commodity price hedging program. Encana hedges the price on a portion of its production to provide greater certainty to cash flow generation, which adds stability to the funding of ongoing capital investment.

About 50 percent of natural gas production hedged for remainder of 2011 and 2012
Encana continues to manage natural gas price risks through its commodity price hedges. As of September 30, 2011, Encana has hedged approximately 1.8 Bcf/d, about 50 percent, of expected October to December 2011 natural gas production, at an average NYMEX price of $5.76 per Mcf. In addition, Encana has hedged approximately 2.0 Bcf/d of expected 2012 natural gas production at an average NYMEX price of $5.80 per Mcf and about 500 MMcf/d of expected 2013 natural gas production at an average price of $5.24 per Mcf.

Encana continually assesses its hedging needs and the opportunities available prior to establishing its capital program for the upcoming year. Risk management positions as at September 30, 2011 are presented in Note 18 to the unaudited Interim Consolidated Financial Statements.

Corporate developments

Quarterly dividend of 20 cents per share declared
Encana’s Board of Directors has declared a quarterly dividend of 20 cents per share payable on December 30, 2011 to common shareholders of record as of December 15, 2011. Based on the October 19, 2011 closing share price on the New York Stock Exchange of $20.22, this represents an annualized yield of about 4 percent.

Encana 2011 guidance
Encana’s corporate guidance for 2011 is posted on the company’s website at

Financial strength

Encana maintains a strong balance sheet. At September 30, 2011, approximately 88 percent of its outstanding debt was composed of fixed-rate debt with an average remaining term of about 12 years. At September 30, 2011, Encana had approximately $4.9 billion of committed revolving bank credit facilities, of which $3.8 billion remains unused. On October 12, 2011, Encana renewed its revolving bank credit facility for C$4.0 billion and extended the maturity date by four years to October 31, 2015. Encana is in the process of renewing a subsidiary credit facility for $1.0 billion and extending the maturity date to October 31, 2015. The credit facilities, which are provided by syndicates of banks, are available for general corporate purposes.

Encana is focused on maintaining investment grade credit ratings, capital discipline and financial flexibility. The company stewards its financial position to a variety of metrics. At September 30, 2011, the company’s debt to capitalization ratio was 34 percent. The company’s debt to debt adjusted cash flow was 1.9 times and debt to adjusted EBITDA was 2.1 times, on a trailing 12-month basis.


11 a.m. Mountain Time (1 p.m. Eastern Time)

A conference call and webcast to discuss the results will be held for the investment community today, Thursday, October 20, 2011, beginning at 11:00 a.m. MT (1:00 p.m. ET). To participate, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 4:00 p.m. ET on October 20 until midnight October 27, 2011 by dialing (800) 642-1687 or (416) 849-0833 and entering passcode 27940948.

A live audio webcast of the conference call will also be available via Encana’s website,, under Investors/Presentations & events. The webcast will be archived for approximately 90 days.

NOTE 1: Non-GAAP measures
This news release contains references to non-GAAP measures as follows:

Cash flow is a non-GAAP measure defined as cash from operating activities excluding net change in other assets and liabilities, and net change in non-cash working capital. Free cash flow is a non-GAAP measure that Encana defines as cash flow in excess of capital investment, excluding net acquisitions and divestitures, and is used to determine the funds available for other investing and/or financing activities. Debt to debt adjusted cash flow is a non-GAAP measure defined as debt divided by cash flow before interest expense net of tax.
Operating earnings is a non-GAAP measure defined as net earnings excluding non-recurring or non-cash items that management believes reduces the comparability of the company's financial performance between periods. These after-tax items may include, but are not limited to, unrealized hedging gains/losses, exploration and evaluation expenses, impairments and impairment reversals, gains/losses on divestitures, foreign exchange gains/losses and the effect of changes in statutory income tax rates.
Capitalization is a non-GAAP measure defined as current and long-term debt plus shareholders’ equity. Debt to capitalization and debt to adjusted EBITDA are two ratios that management uses as measures of the company’s overall financial strength. EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
Adjusted EBITDA is a non-GAAP measure defined as net earnings before gains or losses on divestitures, income taxes, foreign exchange gains or losses, interest, accretion of asset retirement obligation, depreciation, depletion and amortization, exploration and evaluation expenses and impairments.

These measures do not have standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures provided by other issuers. These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding Encana’s liquidity and its ability to generate funds to finance its operations.

Encana Corporation
Encana is a leading North American natural gas producer that is focused on growing its strong portfolio of natural gas resource plays in key basins from northeast British Columbia to Texas and Louisiana. By partnering with employees, community organizations and other businesses, Encana contributes to the strength and sustainability of the communities where it operates. Encana common shares trade on the Toronto and New York stock exchanges under the symbol ECA.


Financial Summary

(for the period ended September 30)     Q3     Q3     9 months     9 months
($ millions, except per share amounts)     2011     2010     2011     2010

Cash flow1

    1,157     1,131     3,199     3,520
Per share diluted     1.57     1.53     4.34     4.74
Operating earnings1     171     85     352     548
Per share diluted     0.23     0.12     0.48     0.74
Earnings Reconciliation Summary
Net earnings (loss)     120     606     374     1,639
Deduct (Add back):                        
Unrealized hedging gain (loss), after tax     273     331     203     903
Exploration and evaluation, after tax     -     -     (78 )   -
Gain (loss) on divestitures, after tax     1     51     110     113
Non-operating foreign exchange gain (loss), after tax     (325   ) 139     (213 )   75

Operating earnings1

    171     85     352     548

Per share diluted

    0.23     0.12     0.48     0.74

1 Cash flow and operating earnings are non-GAAP measures as defined in Note 1 on Page 6.


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