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Latest Headlines
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Jun 15, 2009 3:22:00 PM MST
EnCana hedges about 35 per cent of natural gas production in 2010 gas year (EnCana-Hedges)
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CALGARY _ Natural gas giant EnCana Corp. (TSX: ECA) has entered into fixed price hedge contracts on about 35 per cent of the its expected natural gas production and remains pessimistic about prices for the commodity in the short run.
The Calgary company said Monday the hedge applies to about 1.39 billion cubic feet per day of its gas production in 2010.
EnCana said it will get an average price of US$6.21 per thousand cubic feet for the 2010 gas year, which runs from Nov. 1 to Oct. 31, 2010.
In hedging contracts, oil and gas producers try to lock in part of their future production at a set price to avoid wild swings in energy prices and being forced to rely on the spot market.
"We´re in a strong position to weather the current financial storm," said EnCana president and chief utive Randy Eresman in a presentation to investors at a symposium put on by the Canadian Association of Petroleum Producers.
In the current year which ends Oct. 31, EnCana has locked in about two thirds of its production, or 2.6 billion cubic feet per day, at $9.13 per thousand cubic feet, twice the current spot gas price. That number will grow in the future, Eresman said.
"We expect the prices to be between $4 and $8. We will continue looking at adding to our 2010 gas hedge positions as the year unfolds and as opportunities arrive until they are about in the 50 per cent range," he added.
Eresman said the program has generated close to $2 billion in cash flow above what market prices would have delivered. He said that ensures EnCana meets its capital investment and dividend requirements.
At an average price of $6 per thousand cubic feet, EnCana expects to earn an after-tax rate of return on gas projects in excess of 20 per cent.
Looking ahead, EnCana said it expects natural gas prices to remain weak because of an oversupply and weak demand in the market.
"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," Eresman said.
Despite the depressed prices Eresman told investors that he has high hopes within the next few years.
"We believe there is now an opportunity for natural gas to displace a significant amount of coal and imported oil to become a much larger source of energy for power generation and transportation fuel," he said.
"The potential exists to increase demand by 25 million TCF per day. It now represents a secure, long term supply of energy."
John Dielwart, president and chief utive of ARC Energy Trust, also remains optimistic about natural gas prices beginning next year and his company will use hedging "aggressively" on a case-by-case basis to finance certain projects.
"It´s where we believe the gas price is going to be in 2010, 2011 and 2012. There´s no way you cannot see materially higher prices than you see today," he explained.
"Gas production will be up enough by year end this year to offset this glut of gas in storage. If we have a winter anything like last winter I think it bodes very well for gas prices".
Dielwart said prices should rebound to around $6 or $7 next year.
EnCana is North Americas largest natural gas producer, with operations in Western Canada, the Rocky Mountain states, Texas and elsewhere. Along with a U.S. partners, the company is also a major oilsands operator in northern Alberta.
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