Energy Prospectus

Encan continues to generate significant free cash flow through capital discipline and strong operational performance

Third quarter 2019 highlights:

For the third quarter of 2019, Encana posted net earnings of $149 million, or $0.11/share. Non-GAAP operating earnings for the third quarter were $195 million, or $0.15/share. < Compares to my forecast of $253 million net income or $0.18/share.

Cash from operating activities in the third quarter was $756 million. Non-GAAP cash flow increased 39 percent over the comparable period in 2018 to $817 million. < Compares to my forecast of $827 million cash flow from operations.

The Company has completed the repurchase of 196.7 million Encana common shares at an average price of $6.35/share. Investment in the program totaled $1,250 million.

At the end of the third quarter, Encana had nearly $3.4 billion of total liquidity including approximately $138 million in cash and cash equivalents. < Encana is a big upstream company with more than enough liquidity to fund its growth plan.

Financial performance driven by strong liquids production and cost focus.
Raised 2019 production outlook while maintaining original capital guidance and reducing costs.
Increased forecast for annualized G&A synergies to $200 million from original target of $125 million.
Strong oil and condensate production of 237 thousand barrels per day (Mbbls/d), and total production of 605 thousand barrels of oil equivalent per day (MBOE/d). < Compares to my forecast of 595,000 Boepd.
Anadarko Basin continued strong production; currently producing 162 MBOE/d, up 13 percent over one year ago proforma.
STACK pacesetter well costs under $6.0 million and 90-day cycle times driven by increased completion efficiencies and operational performance.
Permian Basin achieves record average quarterly production of 111 MBOE/d.
Montney liquids production of 54 Mbbls/d, up 22 percent over one year ago.
Total costs decreased to $11.95 per barrel of oil equivalent (BOE). Lowered full year guidance for costs.
Non-GAAP cash flow margin of $14.67/BOE.
Completed 2019 share buyback program of $1.25 billion, reducing share count by approximately 13 percent.

CALGARY, Oct. 31, 2019 /PRNewswire/ - Encana Corporation (NYSE, TSX: ECA) today announced its third quarter 2019 financial and operating results and plans to hold a conference call with analysts and investors today at 7 a.m. MT (9 a.m. ET). Please see dial-in details within this release. Additional details can be found on the Company's website at www.encana.com.

"Encana continues to deliver consistently strong financial performance," said Encana CEO Doug Suttles. "Our business is delivering free cash flow today. We have been very disciplined with our capital allocation and today increased our outlook for 2019 volumes while maintaining our capital investment guidance. We have a unique combination of profitable liquids growth, the generation of free cash and a track record of returning cash to our shareholders. We are confident that our business model is sustainable and that it will ultimately be differentiated by the market."

This is interesting and unexpected.

CALGARY, Oct. 31, 2019 /CNW/ - Encana Corporation (NYSE, TSX: ECA) today announced its intention to establish corporate domicile in the United States. The move, which requires shareholder, stock exchange and court approval, is expected to occur in early 2020. As part of this process, the new company will rebrand under the name Ovintiv Inc. Additional information will be available on the Company's third quarter 2019 financial and operating results conference call, scheduled for today at 7 a.m. MT (9 a.m. ET). Please see dial-in details within this release.

"We are excited about our strategic transformation. Our Company is positioned to compete in the broader markets and lead the E&P industry on the road ahead," said CEO Doug Suttles. "Over the last five-plus years, we have transformed our portfolio and our culture. We've created a high quality, liquids focused multi-basin portfolio. Our focus on innovation and efficiency is consistently delivering superior financial and operational performance. A domicile in the United States will expose our Company to increasingly larger pools of investment in U.S. index funds and passively managed accounts, as well as better align us with our U.S. peers. The change in corporate domicile will not change how we run our day-to-day activities. However, our actions show that we will leave no stone unturned to capture the value we deeply believe exists within our equity."

Ovintiv will be uniquely positioned to be a leader in the E&P industry, which is at the cusp of transformation today. The Company is generating significant free cash flow, returning cash to its shareholders and generating industry-competitive liquids growth from its multi-basin portfolio of assets. It is this unique combination that the Company believes will ultimately be differentiated by the market.

In coordination with the change in corporate domicile, a consolidation and share exchange will be completed for effectively one share of common stock of Ovintiv for every five common shares of Encana. A special meeting of Encana shareholders will be held in early 2020 to approve the name change, the share consolidation and the U.S. domicile. Approval by two-thirds of votes cast will be required to approve the changes, as well as stock exchange and Canadian court approvals. A preliminary proxy statement/prospectus is expected to be filed with the U.S. Securities and Exchange Commission and Canadian securities regulatory authorities in early November. Following completion of the corporate redomicile and the adoption of its new name, the new company will begin trading on both the New York and Toronto stock exchanges under the ticker symbol "OVV."
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From Bloomberg 10-31-2019
For Encana, the move is a logical shift since Doug Suttles, a Texan, took over as chief executive officer in 2013. Suttles soon set about selling Canadian assets and building a major position in the U.S. through the purchase of Permian driller Athlon Energy and the acquisition of Freeport-McMoRan Inc.’s Eagle Ford shale assets. The company moved into the Scoop and Stack shale fields in Oklahoma, the Bakken region of North Dakota and the Uinta play in Utah with its purchase of Newfield Exploration, which closed in February.

Encana now gets about 80% of its production from U.S. plays and invests a roughly equal portion of its capital spending in them.

Read more: https://finance.yahoo.com/news/canada-b ... 38529.html

I have updated my forecast/valuation model for ECA and it will be posted to the EPG website this afternoon.

Key points.
> ECA is trading $3.97 is morning, which is lower than the net asset value of just their P1 reserves.
> Book value per share is approximately $7.50 and they have an aggressive share repurchase program underway.
> ECA is profitable and generating more than enough cash flow from operations to fund a capex program that will generate double digit annual production growth.
The merger with Newfield Exploration closed 2-13-2019 and their pre-merger synergies are being realized
2019 results should be approximately $0.35 EPS and $2.25 operating cash flow per share.
My 2020 forecast is $0.95 EPS and $2.70 operating cash flow per share
First Call's 2020 forecast is $0.65 EPS and $2.35 operating cash flow per share.
> ECA is a large-cap with over 600,000 Boepd of production. 2019 exit rate should be approximately 610,000 Boepd.

We will publish an update profile on the company next week.