Lets get constructive answersSorry, leaving on holidays so I had the questions answered sooner:
Thank-you for your email dated Monday, December 19. EnCana's comments are below in 'blue'. Hopefully our comments will be helpful to you.
Regards,
Investor Relations.
Dear Eca management,
I am writting on behalf of a number of shareholders, that have the following questions:
Questions for Encana
1. Gwyn Morgan has skillfully played the nationalist card while in charge. Does that mean that Encana will automatically reject any and all offers from foreign company suitors? Or, expressed differently, will Encana accept a generous takeover bid from a foreign-based multinational oil company?
Answer: As a practice, EnCana does not comment on deals whether they're based on rumor or fact.
With this said, one of EnCana's news releases from early October stated, "The company’s board of directors and management team believe that EnCana’s continued independence is the best way to create long-term value for shareholders."
2. Now would be an excellent time for Encana to spin off the more conservative assets into a royalty trust from the perspective of immediately rewarding shareholders. In the past, the executive has been rather negative on this option (perhaps with good reason).
What is the current view of management with respect to the option of trusting some or all of the assets?
Answer: We always look for ways to optimize value, therefore, never rule out any option.
3. Of less importance: CBM. What are the economics of Encana's CBM projects? What are the proportions of fixed capital versus variable costs? What is the length of time forecast to pay down development costs at current nat. gas prices? What is the natural gas price at which current CBM projects become uneconomic?
Answer: Jeff Wojahn, Executive Vice-President and President Canadian Plains, provided a presentation at our most recent Investor Days, outlining some of the economics of our CBM plays. This should be helpful in answering your questions. I've attached the link for your use. Please refer to the Canadian Plains presentation. You'll notice in the presentation it notes the supply cost for our Horseshoe Canyon CBM project is $3.10/MMBtu for forecast 2005 and $3.40/MMbtu for forecast 2006. EnCana defines supply cost as that NYMEX gas or oil price, which when applied to our projects, with appropriate adjustments for quality and transportation, returns our cost of capital which we approximated at a nine percent after tax.
www.encana.com/investor/presentations_and_events/investor_day_2005.html
4. For third quarter ending 2005, many people are confused, what was the real loss on hedging. Was it only $135,000,000.00 million for third quarter???
Answer: As stated in EnCana's third quarter news release, financial price risk measures resulted in realized losses of $135 million after-tax. However, when reporting net income, we are required to include the future value of forward hedge positions (unrealized gains and losses). The future value of our current contracts stretch out to 2007. This may be part of the reason people are confused. In the income statement,our financial instruments are calculated by marking all forward positions against the forward curve. What we are valuing is the cost/benefit of these positions if we had to close them out at the end of the quarter. If prices rise during the subsequent quarter, we would show additional unrealized losses. However if prices fall during the quarter, we would show unrealized gains on the value of future positions.
5. for 2006 what percentage of natural gas is hedged? Approximately 20% of gas is hedged through swaps at a price of approximately $5.80. We have swaps in place that provide downside protection on additional volumes, approximately 80% of 2006 gas production is exposed to commodity price upside.
6. Has the share buyback program commenced for 10% of the outstanding shares.
Answer: We plan to consider further share purchases, along with debt repayment, when we begin to receive the anticipated proceeds of our announced divestitures.
thank you in advance,