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EnCana extends risk management measures by hedging about 35 percent of 2010 natural gas production |
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Written by REM
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CALGARY, AB - EnCana Corporation has extended its risk management program for 2010 by establishing fixed price hedges on about 35 percent of the company's expected natural gas production-about 1.39 billion cubic feet per day-at an average price of US$6.21 per thousand cubic feet (Mcf) for the 2010 gas year, which runs from November 1, 2009 to October 31, 2010.
"Our gas price hedging program has served us well in the first five months of 2009, generating close to $2 billion in cash flow above what market prices would have delivered. This strong cash flow has underpinned our 2009 capital investment during the global economic downturn. Our hedging program increases certainty in cash flow and helps ensure that we meet our capital investment and dividend requirements. It also brings greater certainty to the economics of our projects. At an average price of $6 per Mcf, EnCana expects to earn an after-tax rate of return on gas projects in excess of 20 percent," said Randy Eresman, EnCana's President & Chief Executive Officer.
Natural gas prices remain weak
"North American natural gas markets remain oversupplied due to two factors: the emergence of large new supplies from unconventional plays followed by a major economic downturn in the past year that has cut demand. These events have driven prices to levels well below what it costs to add new supplies-levels that we believe are unsustainable. In recent months, drilling has slowed and over time we expect that production will decline, bringing the market back into balance. However, it is difficult to predict when that will occur and what price will emerge," Eresman said.
About two thirds of current gas production hedged above $9 per Mcf
EnCana says its financial position is strong and that the company's debt ratios remain below its targeted ranges. Encana purports it has hedged about two-thirds of expected natural gas production, about 2.6 billion cubic feet per day, through October of this year at an average NYMEX equivalent price of $9.13 per thousand cubic feet (Mcf), which is more than two times the current spot price. EnCana continually assesses its hedging needs and the opportunities available prior to establishing its capital program for the upcoming year.
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