the future.pdf
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take a closer look
The Future of Canadian Natural Gas andNatural Gas Liquids
Richard Dunn | Vice President, Regulatory and Government Relations
May 8 | 2012
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The Future of Canadian Natural Gas and NGLs An Overview
Introduction to Encana
Extent of unconventional shale gas resource
Enabling technology
New focus on natural gas liquids
– Implications for propane sector
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Encana CorporationVast Land Position: 11.7 Million Net Acres
Total Production2011 ActualNatural Gas (MMcf/d)Liquids (Mbbls/d)
3,33324.0
2012 ForecastNatural Gas (MMcf/d)Liquids (Mbbls/d)
3,100*28
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Stakeholder engagement – Retainsocial license to operate
Responsible development – Operate safely with minimalenvironmental impact
Low cost focus - Advance resourceplay hub design and development
Liquids-rich production- Increaseexposure to oil and natural gasliquids
Partnerships - Attract third partyinvestments in undevelopedreserves and resources
Demand - Grow the market for North American natural gas
Encana CorporationCanadian Division Strategic Focus
Encana Land (Dec. 31, 2011)Total Canadian Division Net Acres: 8.5 MM
Greater Sierra
(inc. Horn River)
Cutbank Ridge
(inc. Montney)
Bighorn
CBM
Resource Play
Emerging Play
Duvernay
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North American Gas ProductionSignificant growth from shale gas
0
10
20
30
40
50
60
70
80
90
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20
Other Tight Gas CBM Shale
Source: Encana, IHS Energy
Total production grows from 70 Bcf/d in 2010 to 85 Bcf/d in 2020Bcf/d
43 Bcf/d
> 50%
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North American Natural Gas Basins
Guarantees reliability and diversity of supply
North American Natural Gas Basins
C
Canadian Resource Estimates
700-1,300 TCF of TotalReserve
100 + year supply
Expanding developments in USput competitive pressures ondelivery of western Canadiannatural gas to traditional
markets in the north-easternUS and eastern Canada
5
Horn River
Montney
Barnett Fayetteville
Haynesville
Marcellus
Eagle Ford
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Advancing Resource Play Hub
Concentrated resource
+ Pad drilling
+ Manufacturing process
= Resource play hub Represents ~15 square kilometres of reservoir accessed
from a single surface location.
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Drilling and CompletionsManufacturing style operations
Significant logistical coordination and planning required for success
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Field OperationsTypical Well Site
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CAPP Guiding Principles for Hydraulic FracturingIncreasing transparency
Guiding Principles:
Protection of quality and quantityof fresh groundwater
Hydraulic Fracturing :
– Fracturing fluid additivedisclosure
– Baseline groundwater testing
– Wellbore integrity and qualityassurance
– Water sourcing and reuse
BC and AB have committed tomandatory online reporting
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Courtesy MattersIt’s about doing the right thing
Proactive partnership between
Encana, its contractors, employeesand community
Government encourages companiesto have Social Responsibility Program
Encana program “Courtesy Matters” tominimize disturbances associated withdevelopment activities – Noise – Dust – Traffic
– Garbage – Know your neighbour
Vital to our social license to operate
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The Difference Between Oil and GasOil is booming and gas is struggling
* Measuredbased onenergyequivalence
Canadian oil growth is continuing to thrive
Historically oil and gas price coupled,
Gas now trading at ~ 80% discount to historic relationship
Fixed price ratio Prices decoupled
$0
$5
$10
$15
$20
$25
Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
Gas
Price per MMBtu
Oil
Source: NYMEX oil, coal, and gas spot prices. Forward prices as of December 21, 2011.
Nymex
Strip Prices
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Cutbank Ridge PartnershipDawson Creek Montney FDI example
Encana and Mitsubishiannounced a new partnershipagreement on February 17, 2012
– Includes 409,000 net acres ofundeveloped Montney lands inBC
– Under the agreement, Encanawill own 60% and Mitsubishi willown 40% of the Cutbank RidgePartnership
– Encana will be the managingpartner and operator
– Will create 14,000 ongoing jobs
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Total Asian Natural Gas DemandFuture of LNGBy 2020, total forecasted Asian natural gas demand is 65 Bcf/d. Demand growth is
dominated by China and India, making up 55% and 12% of 2020 demand, respectively.
Other includes Singapore, Vietnam, Thailand, Indonesia, Bangladesh and Pakistan.
Source: BP, Encana, IEA, IMF, Japan Statistics Bureau, KEEI, National Bureau of Statistics of China, TaiwanBureau of Energy.
Bcf/d
0
10
20
30
40
50
60
70
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Korea Taiwan Japan China India Other
Forecast
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Potential LNG ProjectsVarying stages of development
*Source: Globe and Mail
KitimatLNG
BC LNGCo-op
ShellConsortium
PrinceRupert
Progress/Petronas
Nexen/ InpexCorp.
Apache,Encana, EOG
Haisla FN(50%), 16additional
members
Shell, KOGAS,CNPC,Mitsubishi
Prince RupertPort Authority,BG Group
ProgressEnergy,Petronas
Nexen, InpexCorp
Export licensegranted
Export licensegranted
Studyingoptions
Studyingoptions
Studyingoptions
Studying options
Final Capacity:
1.4 bcf/d
Final Capacity:
250 mmcf/d
Final Capacity:
TBD(speculated tobe up to 3.6bcf/d)
Final Capacity:
TBD
Final Capacity:
TBD(speculated tobe up to 1.8bcf/d)
Final Capacity:
TBD
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Duvernay Shale Significant Liquids Rich Shale Opportunity
Duvernay
Over $3.6 billion in land sales since 2009
Significant Alberta Unconventional Resource Opportunity
– Fairway (1,500 twp) resource potential estimated at 700 TCF gas in place,170 Bbbls liquids in place
– ~ 40 wells in play to date
Key risks include technical,economic, regulatory &access
– Deep horizontals, high temp &pressure - high-costtechnologies, on-going R&D
Government of Albertaaddressing risks through
– Shale Gas Royalty (DOE)
– Play based regulations (ERCB)
– Access planning (SRD)
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From Wellhead to Market3-Stream Process Flow
Wellhead
Inlet Separator
Gas Plant
Field / FreeCondensate
75 bbl/d
Wet Wellhead Gas1 MMcf/d
Shrinkage ~ 10%
Liquids Rich Fluid
Sales Gas 0.9 MMcf/d
NGL Yields
- SHALLOW Cut
Ethane 0 bbl/d
Propane 10 bbl/dButane 5 bbl/dC5+ 10 bbl/d
Total ~ 25 bbl/d
NGL Yields
- DEEP Cut
Ethane 25 bbl/dPropane 20 bbl/d Butane 30 bbl/dC5+ 10 bbl/d
Total ~ 65 bbl/d
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Canadian NGL Supply and DispositionPetrochemical demand is the only market for ethane
NGL Barrel(2011)
Product Mbbls/d Share
Ethane (C2) 230 37%
Propane (C3) 160 26%
Butanes (C4) 90 15%
Condensates 140 22%
TOTAL Supply 620 100%
Demand Type
Petrochemicals
Heating & Agriculture
Refineries
Exports
Oil and Gas
Supply Demand
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Alberta Propane Demand BreakdownMajority of Propane is Exported to USA and Rest of Canada
30%
26%
14%
12%
10%
8%
Oil and Gas Extraction/Mining
Commercial and other Institutional
Manufacturing
Residential
Transport
Agriculture/Other
Propane Use in Canada
Source: Pervin and Gertz (2009)
24%
29%
47%
Alberta Demand
Rest of Canada Exports
USA Exports
Source: Encana Fundamentals, ERCB (2011)
Demand Breakdown
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0
5
10
15
20
25
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Bcf/d
WCSB Conventional WCSB CBM Deep Basin
Horn River Montney Duvernay
Forecast
WCSB Natural Gas Production ForecastConventional Basin Supply Declining
Source: Encana
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WCSB Supply & Demand OutlookExpected impacts on pricing
Ethane – Bakken gas and development of liquids rich playsleading to excess supply versus AB Petrochemical facilitiesdemand
Long term contracts drop from $2.50 to $1.00/GJ (premium to AECO)
Propane – Growing supplies and potential for less US demand
Decrease in price to support exports to US, ~70% → 50% of WTI
Butane - Demand growth from oil sands blending coupled withflat to declining production, means market to remain balanced
Maintain historical norm, ~70% of WTI
Condensate – Increasing oil sands production grows need forC5+ as diluent, demand to be met by increasing imports
On-going premium, ~110% of WTI
WCSB P S l /D d B l
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WCSB Propane Supply/Demand Balance
Source: BCMEMR, Encana, ERCB, NEB, USITC
0
50
100
150
200
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Mbbls/d
WCSB Supply Line 6 Line 7 Max Demand +Exports
Forecast
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Price FluctuationBalancing supply and demand
Industry’s shift in focus to liquids rich plays will continue to increase
supply of propane and other natural gas liquids in North America
– Storage in Canada and US is full and is putting downward pressure on
price – currently at 47% WTI
– Need to increase demand to shift price back to traditional levels(~65-70% WTI)
Pipeline bottlenecks in Midwest US are hampering ability to flow
propane to Gulf Coast for export
– Infrastructure is currently under construction to increase the
flow and allow for increased US exports
– New pipe capacity will ease the backlog of supply
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23Source: Encana, EV Maps
Natural Gas LiquidsMajor NGL Pipelines
Mont
Belvieu
Conway
Sarnia
Marcellus
Western
Canada
Hobbs
South LA
Skelly
Medford
Midwest
Primary Hub
Secondary Hub
Flow Direction
Bakken
West
Rockies
Existing Pipeline
East
Rockies
Cochin
(Spec C3)
Enbridge
(All products)
Alliance
(Wet Gas)
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Conclusion
Natural gas industry in a transition period – New technology has increased supply, driving price down
– Producers refocusing on liquids-rich plays to bolster theeconomics
Increased liquids production is creating new NGL supplies
– New supply is putting downward pressure on propane price
– Pipeline expansions underway to de-bottleneck the export route tothe Gulf Coast
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In the interests of providing Encana shareholders and potential investors with information regarding Encana, including management's assessment of Encana's and itssubsidiaries' future plans and operations, certain statements contained in this presentation are forward-looking statements or information within the meaning of applicablesecurities legislation, collectively referred to herein as "forward-looking statements." Forward-looking statements in this presentation include, but are not limited to:achieving 2012 capital investment focused on liquids exploration and development, minimizing dry gas investment, including expanding NGLs extraction capacities,expected volume and percentage reduction of natural gas market supply and production in 2012, expected success of resource play hub development, projection for2012 capital investment to equal cash flow forecast minus anticipated dividends, prospects to generate oil and liquids reserves and production from several new playsand other plays, including number of wells to be drilled and the expectation to develop three to four key liquids resource plays from current land inventory and theexpected recoverable reserves and production from the same, completion of transaction agreements with Mitsubishi, including potential terms, closing date, amount ofinvestments, funding commitment and development of otherwise undeveloped natural gas properties, estimated amount of cash on balance sheet after closing of the
partnership agreement with Mitsubishi, estimates of reserves, economic contingent resources, estimated NGIP, and estimated number of net drilling locations, includingper key resource play, achieving NGLs extraction target and liquids production by 2015, including expected on-stream date of the extraction capacity expansion at theMusreau plant, achieving diversification to balance revenues between natural gas and liquids production, achieving successful exploration and development results inTuscaloosa, Utica/Collingwood, San Juan basin, DJ Basin Niobrara, Alberta Duvernay, Eaglebine, Mississippi Lime and Piceance Niobrara/Mancos areas, the effect ofthe company's risk management program, including the impact of commodity price hedges, projections contained in the 2012 Corporate Guidance (including but notlimited to estimates of cash flow, including per share, natural gas and oil and NGLs production, capital investment and its allocation, net divestitures, and estimated 2012sensitivities of cash flow and operating earnings), expected first natural gas production at Deep Panuke and expected production rate, the flexibility of capital spendingplans and the sources of funding therefore, ability to maintain investment grade credit rating and monitor future debt to debt adjusted cash flow, debt to adjusted EBITDAand debt to capitalization ratios, estimated reserve life index, expected growth of liquids production, estimated capital spending, exploration, and development in variousplays and anticipated production from the same, expectation to increase demand and create markets for natural gas and success of the company's initiatives, expectedonline date, export capacity and phases of the Kitimat LNG export facility, including achieving an uplift in natural gas price, and expectation for long-term future fornatural gas.
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon whichthey are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general andspecific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the company'sactual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied bysuch forward-looking statements. These assumptions, risks and uncertainties include, among other things: volatility of, and assumptions regarding natural gas andliquids prices, including substantial or extended decline of the same; assumptions based upon the company's current guidance; fluctuations in currency and interestrates; risk that the company may not conclude divestitures of certain assets or other transactions (including third-party capital investments, farm-outs or partnerships,which Encana may refer to from time to time as "joint ventures") as a result of various conditions not being met; product supply and demand; market competition; risksinherent in the company's and its subsidiaries' marketing operations, including credit risks; imprecision of reserves estimates and estimates of recoverable quantities ofnatural gas and liquids from resource plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources,including future net revenue estimates; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities; unexpected cost increasesor technical difficulties in constructing or modifying processing facilities; risks associated with technology; the company's ability to acquire or find additional reserves;hedging activities resulting in realized and unrealized losses; business interruption and casualty losses; risk of the company not operating all of its properties and assets;counterparty risk; downgrade in credit rating and its adverse effects; liability for indemnification obligations to third parties; variability of dividends to be paid; its ability togenerate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; the timing and thecosts of well and pipeline construction; the company's ability to secure adequate product transportation; changes in royalty, tax, environmental, greenhouse gas, carbon,accounting and other laws or regulations or the interpretations of such laws or regulations; political and economic conditions in the countries in which the companyoperates; terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions made against the Company; and other risks anduncertainties described from time to time in the reports and filings made with securities regulatory authorities by Encana. Although Encana believes that the expectations
represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned thatthe foregoing list of important factors is not exhaustive. In addition, assumptions relating to such forward-looking statements generally include Encana's currentexpectations and projections made in light of, and generally consistent with, its historical experience and its perception of historical trends, including the conversion ofresources into reserves and production as well as expectations regarding rates of advancement and innovation, generally consistent with and informed by its pastexperience, all of which are subject to the risk factors identified elsewhere in this presentation.
Assumptions with respect to forward-looking information regarding expanding Encana's oil and NGLs production and extraction volumes are based on existing expansionof natural gas processing facilities in areas where Encana operates and the continued expansion and development of oil and NGL production from existing propertieswithin its asset portfolio.
Forward-looking information respecting anticipated 2012 cash flow for Encana is based upon achieving average production for 2012 of between 2.8 Bcf/d and 3.1 Bcf/dof natural gas and 28,000 bbls/d of liquids, commodity prices for natural gas and liquids based on NYMEX $3.25 per Mcf and WTI of $95 per bbl, an estimatedU.S./Canadian dollar foreign exchange rate of $1.00 and a weighted average number of outstanding shares for Encana of approximately 736 million.
Furthermore, the forward looking statements contained in this presentation are made as of the date hereof and, except as required by law, Encana undertakes noobligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. The forward looking statementscontained in this presentation are expressly qualified by this cautionary statement.
Future Oriented Information
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