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a vision for growing the common sense shareholder value / 12 clean and affordable alternative / 31

answering the tough questions q & a with eNHANCING SKILLS AND Sherri Brillon / 18 IMPROVINGc ECONOMIES / 39

pioneering a model OUR COMMITMENT where innovation and tO responsible efficiency meet / 22 development / 42

/10

Encana Corporation Vol/ two Issue / one Annual Report 2010 www.encana.com TSX: ECA - NYSE: ECA TAKE A CLOSER LOOK AT OUR TAKE A CLOSER LOOK AT THE RESOURCE POTENTIAL BENEFITS OF NATURAL GAS 14.3 $4.05 65% 10 0

TCFE TOTAL PROVED RESERVES MCF 2010 CORPORATE AVERAGE LESS CO2 EMISSIONS THAN COAL YEARS OF CURRENT SUPPLY IN NORTH SUPPLY COST * PER KILOWATT HOUR AMERICA AT CURRENT CONSUMPTION RATES OPPORTUNITY- RICH We are rising to the challenge of sustaining THE CLEANEST- AN ABUNDANT • increased total proved reserves LOW-COST FOCUS by 12 percent from 2009 • goal to lower supply cost to our business success and increasing BURNING FOSSIL FUEL RESOURCE approximately $3 per Mcf over the • 25 percent less CO emissions • a secure, made-in-North America • additional 20.0 Tcfe 1C 2 than oil energy solution (low estimate) economic next 3 to 5 years the value of every Encana share in a low contingent resources • maximizing operational efficiencies • particulates from combustion 90 percent lower than oil and • 11.7 million total net acres and cost savings achieved through natural gas price environment through resource play hub approach 99 percent lower than coal • over 20 years of drilling capital discipline, risk management and opportunities • continual assessment and high- REDUCED grade of asset portfolio through acquisition and divestiture program by applying technology, efficiency and EMISSIONS • leveraging third-party capital to BY CONVERTING LARGE TRUCKING FLEETS lower our costs, increase capital innovation to our resource play hub TO NATURAL GAS 37,000 efficiencies and bring forth value NET DRILLING LOCATIONS (BEST ESTIMATE) recognition sooner through production model. 1/3 FUELING A TRANSPORT increased development activity LESS EXPENSIVE THAN GASOLINE • large geographically-diverse, PARADIGM AT THE PUMP high-quality portfolio of With our enormous resource potential in many of North America’s most prolific • Canadian federal report recommends resource plays AFFORDABLE expanded natural gas use • pursuing additional value and natural gas resource plays, we will continue to grow the reserves and productive NATURAL GAS across medium- and heavy-duty enhanced project returns from capacity of our diverse and abundant portfolio of opportunities. • 15 to 30 percent less expensive transportation sectors liquids-rich production than diesel • Colorado state grants supporting TEN Our goal is to be the highest-growth, lowest-cost senior natural gas producer infrastructure to accelerate market NATURAL GAS-POWERED DRILLING for compressed natural gas RIGS DEPLOYED in North America. By accelerating production growth from our high-quality, CAPITAL DISCIPLINE low-cost resource base, establishing joint venture investments and building • strong investment grade CULTURE OF INNOVATION demand for natural gas, we are pursuing the greatest value proposition credit rating $ • multi-discipline, knowledge-sharing • healthy balance sheet, with debt for our shareholders. teams refining resource play hubs to capitalization at less than 450 across key and emerging plays I invite you to take a closer look. 40 percent and a debt to adjusted BILLION VALUE ADDED TO CANADIAN • pioneered use of cost-saving EBITDA at less than 2.0x AND U.S. ECONOMIES* 2024 fit-for-purpose drilling equipment • approximately one-half of 2011 A DOMESTIC RESOURCE THE YEAR NATURAL GAS IS FORECAST TO BE • strategic pad site design for THE LEADING SOURCE OF ENERGY (ALBERTA daily production hedged to provide • up to 35,000 jobs created with every concurrent drilling, completion, Randy Eresman ELECTRIC INDUSTRY MARKET STUDY) greater cash flow certainty 1 percent increase in North American production and midstream President & CEO natural gas production operations Encana Corporation CLEAN ENERGY FOR THE • commenced construction on five • estimated $160 billion improvement POWER INDUSTRY in foreign trade balance if natural gas natural gas fueling stations • Colorado legislation designed to displaces foreign oil for transportation replace coal with natural gas in aging generation units

*IHS Global Insight: September 2009 – The Contributions of the Natural Gas Industry to the *Supply cost is defined as the flat NYMEX natural gas price that yields a risked internal rate U.S. National and State Economies; February 2010 – The Contributions of the Natural Gas of return of 9 percent after tax: does not include land costs. Industry to the Canadian National and Provincial Economies a vision for growing shareholder value / 12

answering the tough questions q & a with Sherri Brillon / 18 Being a good neighbour in the communities where we work responding to feedback. Recent community surveys indicated and live is more than just a best practice – it stems from our over 80 percent of residents believe our landowner respect pioneering a model knowledge that actions speak louder than words. Our social program, Courtesy Matters, is working. Take a closer look. licence to operate depends on working with stakeholders whereWe areinnovation Encana. and in a transparent, honest and respectful way by listening and efficiency meet / 22

Learn more about natural gas and Encana at www.encana.com

take a closer look diversifying total company our resources / north america / key resource plays 1P / 14.3 1C / 20.0 / 3,321 / 11,736 / 25,000

GREATER SIERRA (includes Horn River) BC / Canada 1P / 1.3 1C / 3.5 JONAH 236 / 1,809 / 1,100 WY / United states 1P / 2.0 1C / 0.2

CUTBANK RIDGE 559 / 120 / 700 (includes Montney) AB / BC / Canada PICEANCE 1P / 1.8 1C / 4.6 CO / United states 401 / 1,133 / 1,700 1P / 1.6 1C / 1.4 458 / 840 / 1,800 BIGHORN AB / Canada FORT WORTH 1P / 1.0 1C / 0.6 TX / United states 239 / 488 / 600 1P / 0.9 1C / 0.7 124 / 55 / 700 COALBED METHANE AB / Canada EAST TEXAS 1P / 1.9 1C / 1.7 TX / United states 317 / 2,100 / 15,300 1P / 0.7 1C / 1.4 348 / 230 / 300

1P / Proved Reserves (Tcfe) ( ) 1C / Economic Contingent Resources Tcfe HAYNESVILLE / 2010 Average Production (MMcfe/d) TX / LA / United states / Net Acres (Thousands) / Drilling Inventory Net Wells (based on 1P + 1C) 1P / 1.8 1C / 4.8 303 / 350 / 1,500 As at December 31, 2010

Despite a year of challenging prices, 2010 chairman’s message /8 Resource play hubs are an innovative and marked great progress towards Encana’s pursuit efficient production model tailor-made to of becoming North America’s leading, high- Encana is committed to attaining the reduce natural gas production costs and growth, low-cost senior natural gas producer. highest standards of transparent reporting environmental impact. and accountability. CEO’s message /4 a culture of innovation /21

With its enormous inventory of low-cost, undeveloped resources, Encana believes it can be the highest-growth, lowest-cost senior natural gas producer in North America.

why invest in encana /12

2 Encana Corporation / Annual Report 2010 diversifyingleading

completions OUR Resources improved practices TECHNOLOGY

improved practices drilling in production step-change downward costs

Bank ofAmericaMerrillLynch Director, CanadianEnergyResearch Andrew Fairbanks maximizing itsassetvalue.” low coststructure, andfocuson American gasplays,Encana’s up inearlyentriestothebestNorth hydrocarbons. Thebenefitsshow process offindinganddeveloping and economicfocusthroughout the and employees’strong technical “We likeEncana’s management leading technology

driving future growth 1,500 mMcfe/d 303 n 350,000 Driving RiverinBritishColumbiaandMontneyAlbertaolumbia. Horn and tightgasplaysinNorthAmerica:theHaynesvilleLouisianaTexas, Encana continuestosolidifyitspresence inseveralofthemostexcitingshale establishing resource playhubs. maximizing naturalgasrecovery by development activitywillfocuson that themajorityofHaynesville play. In2011,itisexpected acres intheheartofthisexciting 2010, Encanaholds350,000net of itslandretention program in Having completedthemajority H we D As atDecember 31,2010 aily e a t yn in ll ac P e r c rodu svi ve es 2010 Ave 2010 (1Pntory +1 lle tion Shale rag e / TX /LA /TX

C ) future growth future we 600 mMcfe/d 29 n 264,000 infrastructure development. resource playhuboperationsand begin optimizationworkwith the companycanimmediately any landretention concerns, position inthisplay. W believes ithasanindustry-leading acres River, intheHorn Encana W HOR P c rodu e ith more than250,000net t in ll ac N R r ve tion es 2010 Ave IV (1Pntory +1 ER S HALE rag e D /B C ithout aily C )

throughout itsportfolio. Encana expectstoachieve is anexcellentanalogyforwhat economic playsanditsevolution Montney isoneofEncana’s most approximately $3perMcf,the 2010 averagesupplycostsof development process. W technology andoptimizingthe cost structures byleveraging years ago,Encanahasimproved Since enteringtheMontneyeight MO we 1,600 D mMcfe/d 274 n 693,000 aily e t in ll N ac T P N r c rodu ve E es 2010 Ave 2010 Y T (1Pntory +1 I GHT GA GHT tion rag

e

S /B

C ) ith C /AB vast high-quality portfoLIO North America’s bestresource plays. Encana hasbuiltoneofthelargest,low-cost,contiguouslandpositionsinmany vast geological formations. the Montney, CadominandDoig technology toproduce gasfrom using thelatestextraction reservoir isonlong-termgrowth Encana’s focusinthistightgas Cu the Crown royalty. mineral taxesare generallylessthan held byEncanainperpetuityand which meansthemineralrightsare landholdings are ownedinfeetitle, 75 percent ofthetotalnetacreage shallower sands.Approximately Horseshoe Canyonoalswith Encana’s CBMplayintegratesthe C locations withhorizontalwells. by supplementingexistingwell significant additionalvolumes Encana hashadsuccessextracting focused ondrillingverticalwells, Although historicaldevelopment sweet, liquids-richnaturalgas. cretaceous playproduces primarily This tightgas,multi-zonestacked Bi M oalbed ghor tba nk Ri nk n / AB etha /B dge high-quality n (CBM) /AB e (CBM) C /AB formation. Encanahasrecently primarily intheW by thicknaturalgas accumulations The PiceanceBasinischaracterized Picea improve performanceinthisplay. multi-stage reservoir stimulationto applies horizontaldrillingand in theFortW area Shale andincludestheBarnett underground across a15-county This resource playstretches F unlock thegas. application oftechnologyto V targets theBossierandCotton This tightgas,multi-zoneplay E improved coststructures. in increased wellperformanceand lateral horizontaldrilling,resulting Encana beganimplementingmulti- RiverBasin. formation andHorn development oftheJeanMarie The focusinGreater Sierrais G W ort alley zonesandrequires careful a S reater s t T n e ce /TX orth x a

/ C / TX /LA s /TX i /B erra orth Basin.Encana O illiams Fork C port predominant throughout thebasin. Niobrara formation,athickshale initiated theevaluationphaseof Panuke field. process naturalgasfrom theDeep facilities installationtoproduce and offshore drillingpad andpipeline the DeepPanukeproject involves (156 miles)southeastofHalifax, approximately 250kilometres Located ontheScotianhelf D to bedrilledovera10-yearperiod. NPL estimateasmany3,500wells Long-term developmentplansforthe normally pressured Lance(NPL). began developingtheadjacent the field;however, in 2008,Encana in theover-pressured core portionof Encana’s operationswere conducted fracturing techniques.Historically, with multi-stageadvancedhydraulic wells intheJonahfieldare stimulated Producing from theLanceformation, J o P eep nah f

a / W olio nuk Y e /N S

SOLID financial performance bottom lin e

solid financial p e r f orman ce S trengthening our “We continue to look upon Encana as one of the best managed independents, strong with superior execution investment grade capability and the best real credit rating estate on the block.”

Greg Pardy Managing Director, Co-head, Global Energy Research RBC Capital Markets life cycle approach to portfolio management

balancing growth and financial flexibility strong financial performance all withtheoverridinggoalofpreserving valueforitsshareholders. Operationally andfinancially, Encanaisabletoadaptthechallengesandopportunitiesthatcomeitsway, strong d 31% 2010 y 2.7% annual $0.80 p $1.07 C MM $4,439 MMcfe 3,321 re 2010 e e r M bt For theyearendedDecember31,2010. CAPIT Corporate 2% Division Marketing & to A e 52% cfe cfe / USA S d ar AL H F c PRODUC c su OP -e apitali ommon LO lt nd E G&A C G&A and RATING W s di

Total $4.8Billion z TION v s ation id ehar di e nd yi e ld v id financial performance e nd O S 46% Division Canadian T

S $/M reductions toapproximately $3perMcfoverthenext3to5years. efficiency gainsandcontinuedhigh-grading,thecompanyistargetingfurther reduction toitscapitalweightedportfolioaveragesupplycost.W Over thelastthree-year period,Encanahasdemonstrateda25percent pro 2011F representsinitialprojections 2011F 2010 2009 $4.26 2008 further increasing efficiencies. growth andhighest-margin opportunities, allwhile continues tofocus itscapitalspendingon itshighest- elements ofEncana’s businessstrategy. The company Maintaining flexibilityandcapital disciplineare key PRODUCTION cf Division v $4.05 $4.69 $3.60 e 58% USA n trac /lo k record 3.3 Bcfe/d .

we 42% Division Canadian c ring

Canadian LAND o Division s 78% t s tru 11.7 MillionNetAcres c tur es ith further ith further 22% Division USA

sustainablE future Strategy supply cost was $4.05 per Mcf. supply costwas$4.05perMcf. For 2010,Encana’s corporate to continuedrivecostsdown. structure anditsfirmcommitment is supportedbyitsexistinglow-cost company’s abilitytoachievegrowth gas producer inNorthAmerica.The growth, lowest-costseniornatural Encana’s visionistobethehighest 2. L sustainably highergrowth rate. value oftheseassetsbydeliveringa is toacceleraterecognition ofthe value proposition forshareholders quality ofitsassets,thegreatest that giventhesignificantsizeand existing lands.Encanabelieves 20 yearsofdrillinglocationson high-quality assetbasewithover gas basins,Encanahasavast, America’s mostactivenatural acres oflandinmanyNorth W 1. and continuallystrivingtobeoneofthelowest-costproducers intheindustry. corporate culture focusedonmaximizingmarginsbyincreasing operationalefficiencies Infusing everyelementofEncana’s growth plansisaninnovative,value-driven sust Opportuni ith more than11.7millionnet ow - co s t foc t y- a r us i ch in a

ble credit ratings. company’s investmentgrade work togethertohelpmaintainthe about 13years.Allofthesefactors an averageremaining termof of long-term,fixedratedebt,with at year-end 2010wascomposed All ofEncana’s outstandingdebt EBITDA oflessthan2.0times. 40 percent andadebttoadjusted capitalization oflessthan the companytohaveadebt 2010. Managementstewards bank credit facilitiesatyear-end available underunused,committed balance sheetwith$5.1billion continued tomaintainastrong price environment, Encanahas Throughout thislowernaturalgas i Cap 3. tal future strategy d is c i pl in e burning naturalgas. burning lead toincreased demandforclean- (LNG) exportthatare expectedto generation andliquifiednaturalgas the areas oftransportation,power todevelopinitiativesin government works closelywithindustryand This advocacy-focusedteam North America’s energyportfolio. natural gasasthefoundationof team’s missionistoestablish Encana’s NaturalGasEconomy dema Nat 5. lower itscoststructures. innovative solutionsthatwillhelp a leaderinthedevelopmentof Itwillcontinuetobe learnings. leverage technologyandtoshare ways toconductitsbusiness, Encana isalwayslookingfornew people anditsculture ofinnovation. that supportsEncana’s strategyisits The fourthcompetitiveadvantage Cu 4. lt n u d u ga ral ini inn of re t iat s ive

o s v at i o n take a closer look financial and operatinG performance / year-end highlights

financial highlights OPERATIONAL highlights

(1) (1) (US$ millions, except per share amounts) 2010 2009 After Royalties 2010 2009 Revenues, Net of Royalties 8,870 6,732 Production Cash Flow (2) 4,439 5,021 Natural Gas (MMcf/d) Per Share – Diluted 6.00 6.68 Canada 1,323 1,224 Net Earnings 1,499 749 USA 1,861 1,616 Per Share – Diluted 2.03 1.00 Total Natural Gas (MMcf/d) 3,184 2,840 (2) Operating Earnings 665 1,767 Oil & NGLs (bbls/d) Per Share – Diluted 0.90 2.35 Canada 13,149 15,880 Total Capital Investment 4,773 3,755 USA 9,638 11,317 Net Acquisition and Divestiture Activity (150) (815) Total Oil & NGLs (bbls/d) 22,787 27,197 Net Capital Investment 4,623 2,940 Total Production (MMcfe/d) 3,321 3,003 Dividends Per Common Share 0.80 0.80 Reserves (2) Dividend Yield (%) (3) 2.7 2 Year-End Reserves (Bcfe) 14,335 12,774 Debt to Capitalization (%) (2) 31 32 Net Reserve Additions (Bcfe) 3,074 1,857 Debt to Adjusted EBITDA (times) (2) 1.4 2.1 Production Replacement (%) 254 169 Debt to Proved Developed Reserve Life Index (years) 11.8 11.7 Reserves ($/Mcfe) (2)(4) 1.04 1.14 (1) Reflects Pro Forma results. See Pro Forma information on page 74. (1) Reflects Pro Forma results. See Pro Forma information on page 74. (2) 2009 results after royalties, before price related revisions employing constant prices and costs. (2) Non-GAAP measures as referenced in the Advisory on page 72. 2010 results after royalties, employing forecast prices and costs. (3) Based on NYSE closing price at year-end. For additional information on reserves reporting protocols, see page 73. (4) Based on forecast prices and costs, after royalties case.

Advisory Encana reports in U.S. dollars unless otherwise noted. Production, sales, reserves and economic contingent resources estimates are reported on an after royalties basis, unless otherwise noted. Certain information regarding the company and its subsidiaries set forth in this document including management’s assessment of the company’s future plans and operations, may constitute forward-looking statements or forward- looking information under applicable securities laws and necessarily involve risks and uncertainties associated with future events. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements or information. For further details see the Advisory on page 72 of this document. This document contains references to measures commonly referred to as non-GAAP measures, such as cash flow, cash flow per share – diluted, free cash flow, operating earnings, operating earnings per share – diluted, adjusted EBITDA, debt, net debt and capitalization. Additional disclosure relating to these measures is set forth on page 72 in the Advisory. See also our Endnotes on page 135 for certain defined terms used in this Annual Report.

responsible development /38 Encana maintains a strong balance sheet and Natural gas is the North American solution for management’s discussion is committed to being a low-cost producer. and Analysis 45 a secure energy future, a common sense, Encana’s commitment to responsible / economic alternative for transportation and development means investing in communities Encana is committed to the key business power generation. where it operates, protecting people’s objectives of maintaining financial strength, financials /78 health and safety and minimizing optimizing capital investments and continuing environmental impact. to pay a stable dividend to shareholders.

the natural gas economy /30

Annual Report 2010 / Encana Corporation 3 take a closer look abundant opportunities President & CE O

RANDY ERESMAN / ceo’s message

relentless pursuit of lowering cost structures

In our first year as a pure-play natural gas producer, we

increasing the concentrated our efforts on two core objectives: efficiently value of each Encana share achieving our financial and operational goals for 2010 and accelerating the value recognition of our enormous resource potential – the foundation for generating long- term value for every Encana share. I am pleased to report that we very successfully accomplished our 2010 goals, and we made significant progress accelerating the value recognition of our asset base on the road towards our long-term objective of becoming North America’s leading, high-growth, low-cost senior natural gas producer.

Strong 2010 performance during a year of challenging prices

technological 2010 continued to provide clear evidence of how much has changed in and operating the world of natural gas. The revolutionary technical breakthroughs of efficiencies recent years again delivered abundant supplies of natural gas to market at a time when the global and North American economies struggled to recover from a nagging recession. This resulted in natural gas prices that remained weak, averaging about $4.40 per Mcf – levels that we believe are unsustainable in the long term. Despite these persistent economic challenges, our teams achieved superior performance by efficiently delivering production per share growth of 12 percent and replacing more than 250 percent of our 2010 production. Proved reserves increased 12 percent to 14.3 Tcfe, a natural gas storehouse that represents close to 12 years of supply based on 2010 production rates. Financially, Encana generated cash flow of about $4.4 billion, or $6 per share, supported the natural by commodity price hedges that resulted in realized hedging gains for gas economy 2010 of about $810 million after tax. Operating earnings for 2010 were $665 million, or 90 cents per share. Beyond our drive to grow production

4 Encana Corporation / Annual Report 2010 Encana 2010 Highlights Financial Operating Reserves / before price revisions • cash flow of approximately • total production of 3.3 Bcfe/d • proved reserves of 14.3 Tcfe $4.4 billion, or $6 per share • total natural gas production of • added 3.1 Tcfe of proved • operating earnings of $665 3.2 Bcf/d reserves, compared to and reserves, we continued our million, or $0.90 per share • oil and NGL production of production of 1.2 Tcfe, for a relentless pursuit of lower costs, • capital investment, excluding 23,000 bbls/d production replacement of more than 250 percent achieving a very competitive supply acquisitions and divestitures, • operating and administrative cost of about $4 per Mcf, and we of $4.8 billion costs of $1.07 per Mcfe • proved reserves life index of are confident we can continue approximately 12 years For additional information on reserves reporting protocols, see page 73. to lower production costs as all of our teams are now targeting a supply cost of about $3 per Mcf, based on 2010 cost structures, over Making the best investment decisions the next three to five years. We define supply cost as the flat NYMEX With the new reality of natural gas abundance in North America, there’s natural gas price that yields an internal rate of return of 9 percent after a level of competitiveness that we have not seen in years. What’s not tax, and does not include land costs. It is the prime financial measure and new is our commitment to capital and financial discipline – our process threshold for determining which projects we will fund to grow production for deciding which projects we will fund. Because we have a wealth of and reserves. Our focus on increasing efficiency and reducing cost has a high-growth opportunities, our business units compete internally for solitary goal – maximizing the margins we earn on all production. When capital to fund a diverse and high-quality portfolio of projects for the year we win the drive to be the lowest-cost producer, we sustain our business ahead, and for the long term. It’s not unlike how people manage their throughout all stages in the supply-demand price cycle. Our 2010 results own portfolio of financial opportunities. We all have choices on where to illustrate our continued focus on capital discipline, operational excellence, invest our money. On pages 16 - 17, we explain our life-cycle approach risk management and a relentless pursuit of lowering cost structures and to investing in a suite of opportunities that generates strong returns and maximizing margins. creates value for the long term.

Well-defined and disciplined pursuit of long-term Financial and capital stewardship, disciplined value creation risk management The key to financial and operating success in this highly competitive In this persistent environment of low natural gas prices, financial natural gas environment, and the recipe for long-term value creation, stewardship is of utmost importance. We will not pursue growth at any resides in a series of disciplined practices that are the focus of everyone cost. Our moderated growth plan for 2011 reflects the reality of current at Encana. Our strategies and operations are intensely researched, prices and our disciplined approach. On pages 18 - 19, our Chief Financial tested, detailed and intricate. That is why the theme of our Annual Report Officer Sherri Brillon answers the tough financial questions on our this year invites you to Take A Closer Look at all that we do in pursuit of guidelines for maintaining the financial strength of our balance sheet, our success and leadership in every aspect of our business. In the pages that company’s approach to paying an attractive dividend and when we choose follow, I invite you to read this comprehensive overview of the meticulous to purchase shares, plus details on how to compare key accounting rules and rigorous steps we are taking in pursuit of being North America’s best when measuring our financial performance against our U.S. peers and why natural gas producer. we focus on operating earnings rather than net earnings.

Enormous resource potential – foundation Relentless pursuit of lowering costs for value creation Efficiency and optimization are at the core of our approach to business. First, our high-quality asset base. In March 2010, we redefinedE ncana, Everyone in the company is charged with finding ways to produce more providing to investors extensive detail on the huge potential of our natural natural gas with less effort, energy and investment, to reduce our impact gas reserves and resources. We outlined how we are in an ideal position to on the environment and to continually innovate with every step we take in continue to accelerate our production growth even during a period when our processes. The technical evolutions we have experienced in natural the market is abundantly supplied with natural gas. We know very well how gas development over the past five years alone have redefined how we plentiful natural gas has become in North America, which means that we are doing our work. Through pages 21 - 28 we define our Culture of also know that our key to success is to be the lowest-cost producer in the Innovation, a creative way of working that infuses all we do at Encana. continent. The size and depth of our natural gas reserves and resources is our long-term bank account of value. It is the foundation for how we create value. On pages 12 - 15, we outline why our resource foundation The resource play hub alone is a compelling reason to invest in Encana. The Gold Standard story The resource play hub is Encana’s disciplined approach to move resource showcases how independent evaluators have judiciously defined the plays into commercial production in a repeatable, transferable manner using size and depth of our natural gas reserves and resources, an inventory enterprise-wide collaboration and yielding consistently reduced costs, and that taps some of North America’s most prolific sedimentary basins from improved safety and environmental performance. northern British Columbia, through Alberta, Wyoming, Colorado and Texas to Louisiana. This high-quality asset base provides us with more opportunities than we have capital to invest, which leads to how we decide which projects we fund. CE O’s M essage

Annual Report 2010 / Encana Corporation 5 In past, you may have heard us speak about our gas factory operations and our manufacturing approach to development. In the same way that Competitive Advantages achieved the best safety results to our practices, operations and technologies evolve, so do the names we date, recording our lowest injury rate place on them. How we produce natural gas is a complex and integrated Opportunity-Rich • North American portfolio of natural in Encana’s history. While we can process that involves thousands of incremental steps, operational and gas assets tell you about how we’ve operated engineering augmentations that each offer our staff new opportunities to • history of entering plays early responsibly, a true measure is improve, invent and do better next time. For every creative and efficient and leveraging technology to independent assessment. For solution we develop and repeat across our operations, we increase unlock resources the fifth year in a row, Encana efficiency. That is the focus of what we call our resource play hub, the • tremendous reserves and was named to the Dow Jones evolved name for our core production complex and a way of working that economic contingent resources base Sustainability World Index and we strives to reduce operating and capital costs while continually improving earned the title of “sustainability efficiencies to maximize the margins on every molecule of natural gas we Low-Cost Focus • among the lowest-cost structures leader” in the oil and gas industry. produce. To really understand Encana, one must examine the productive in natural gas industry intricacies of our resource play hubs and the relentless mindset of As we look to 2011 and natural • leveraging scale and efficiencies continuous improvement that permeates our culture of innovation. across operations gas prices remain at levels we believe are below the average The common sense alternative fuel Capital Discipline • disciplined approach to capital cost to add new production, our This is the second year we have designed our Annual Report like a spending and financial stewardship daily focus remains squarely on news magazine, and the reason is because there’s plenty of compelling • strong corporate governance the things we can manage: costs, news to report. Given North America’s newly discovered natural gas Culture of Innovation operational efficiency, risk mitigation abundance, the greatest question for society is how do we capitalize • innovative and comprehensive and pursuing innovative ways to on this clean, affordable and versatile fuel? On pages 30 - 36 we define knowledge-sharing accelerate the value recognition the numerous benefits of the common sense alternative fuel – natural of our resource potential. Over the gas. While methane has long heated many of our homes, there are so past few years we have entered many other uses that make more sense than ever, primarily generating into about 60 agreements with U.S. and Canadian companies looking to electricity and fueling our vehicles. This fuel is very competitive earn healthy returns by investing in projects that step up the development economically and it generates lower emissions, 25 to 50 percent lower of our resource potential. These joint ventures increase project returns, than gasoline for vehicles and coal for electricity respectively. Natural gas shorten the timeline for resource development and lower our economic is the common sense energy solution for fleet vehicles, transportation, and project execution risk. They are the kinds of transactions that illustrate power generation and a variety of other uses. At Encana, we are putting the acceleration of value recognition that we are pursuing. We invest natural gas to work wherever we can. We now have 10 of our drilling shareholders’ savings and business partners’ capital to deliver long-term, rigs fueled by natural gas. In the field, we have about 50 of the 1,000 sustainable value in every Encana share and every Encana community. vehicles in our fleet running on natural gas, and we’re planning to convert In closing, my thanks go to our Board of Directors for its wise and them all. We built and opened our first natural gas fueling station in Red prudent leadership during our inaugural year as a pure-play natural gas River Parish, Louisiana and have four others in development. We are producer. I also extend my appreciation for the dedication, innovative also working with public policy-makers to help make it easier for power leadership and accomplishments of our management teams, employees companies to generate electricity from natural gas rather than coal, and and contractors in 2010. We’ve established a vast foundation that’s we’re inviting municipalities to follow the lead of cities like Los Angeles, burgeoning with resource potential and opportunity, one that I’m where the last diesel bus was recently retired because 99 percent of the confident our people will ambitiously develop as we continue to pioneer city’s 2,228 transit buses run on compressed natural gas. and deliver sustainable value creation for many years ahead. Responsible and safe in all we do The front end of our Annual Report concludes with an update on how we contribute to the communities where we operate. We help build capacity by providing educational sponsorships to high school students Randy Eresman pursuing resource science professions, investing in environmental President & Chief Executive Officer education and supporting the next generation of Aboriginal leaders. Encana Corporation In 2010, we streamlined how we manage our environment, health and March 4, 2011 safety practices with the launch of Ethos, a management system that guides our measurement and assessment of safeguarding our people and our environment. Our safety focus is paying dividends as last year we

6 Encana Corporation / Annual Report 2010 Our resource play hub approach to natural gas production reduces costs on two fronts. First, with a disciplined approach to managing surface logistics it helps reduce our operating and capital costs – and increases value for our shareholders. Secondly, by bringing together our land, technology and people in a focused effort, the resource play hub reduces our operational footprint – lessening impact on the environment and enhancing sustainability. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com

take a closer look n E accounting to our shareholders O’Bri chairman o f the bo ard D avid / chairman’s message

Encana remains steadfastly committed to strong often called “say on pay”, which gives shareholders an opportunity to corporate governance and corporate responsibility provide feedback on Encana’s approach to executive compensation. practices – principles and policies that successfully Encana’s Board of Directors is committed to monitoring environmental performance to ensure the company complies with or exceeds guided the company through a year marked by further environmental laws and regulations and it participates with governments uncertainty in commodity prices and major changes in and industry in providing input into regulatory development. We recognize the natural gas industry. that responsible environmental practices contribute to long-term shareholder value creation. Encana continues to strive to reduce emissions As Chairman of the Board, I have a responsibility to lead the Board of intensity, responsibly source, handle and dispose of water, and increase Directors in ensuring that Encana creates maximum long-term value efficiencies in its operations as it advances opportunities and practices from its vast, high-quality inventory of natural gas resources. I also have aimed at increasing the use of natural gas as a cleaner energy source. the responsibility to ensure that investors and other stakeholders have confidence in Encana, its financial performance, ability to do its job in the All of these measures, in concert with Encana’s corporate strategy, safest possible manner, and that its corporate governance practices and continued capital discipline and prudent risk management, are aimed at policies are effective in assessing and mitigating potential risks and the increasing shareholder value. impacts arising from its activities. Since the split of Encana in 2009, which resulted in the company’s Encana fully complies with all applicable regulatory requirements and we transition into a pure-play natural gas company, we have reconstituted are committed to attaining the highest standards of transparent reporting the Board of Directors. Three directors are women who have built highly and accountability that these requirements represent. It goes without credible careers in the energy sector and four of the 10 outside directors saying that good corporate governance and corporate responsibility bring comprehensive U.S. expertise and knowledge, backgrounds that practices benefit Encana’s business and enhance shareholder value. reflect the diverse demands of Encana’s North American operations. We believe that we have created a Board of Directors with a broad range of At Encana corporate governance and corporate responsibility programs skills and experience to fulfill its role in both overseeing management and are aligned and integrated; they have a common objective – enhancing providing solid advice and counsel. stakeholder confidence that Encana operates in compliance with securities, environmental and other laws while at the same time operating In closing, my thanks go to our Board of Directors for its steadfast ethically, responsibly and as a good neighbour and corporate citizen. dedication and leadership during Encana’s inaugural year as a pure- play natural gas producer. I also express my appreciation to Encana’s Encana was recognized for its leadership in this area once again this past management, employees and contractors for their strong performance year with a number of awards and accolades. We are very proud of these during a year marked by continued challenges. Our company is well achievements. However, we are committed to continually evaluating and positioned to meet these challenges in 2011 and beyond. enhancing our corporate governance practices. On behalf of the Board of Directors, In 2010, Encana significantly updated its Corporate Responsibility Policy. Recognizing their importance, the Board of Directors also approved new stand-alone environment and health and safety policies. These policies and data measuring Encana’s corporate responsibility performance can be viewed at www.encana.com.

In the past year, Encana’s Board of Directors also approved a plan David P. O’Brien to include a non-binding advisory vote by shareholders at the 2011 Chairman of the Board annual general meeting on the subject of executive compensation, Encana Corporation

8 Encana Corporation / Annual Report 2010 take a closer look strong leadership / our executive and board

Executive Officers Board of Directors

Randy Eresman / President & Mike McAllister / Executive David O’Brien, O.C. Allan Sawin Chief Executive Officer Vice-President (Senior Vice-President, David O’Brien is Chairman of Encana’s Allan Sawin is President of Bear Named Encana’s Chief Operating Officer Canadian Division) Board of Directors and also serves as Investments Inc. and serves as in 2002, Randy became President & Responsible for the Canadian Deep Basin Chairman of the Board of Royal Bank a director of a number of private Chief Executive Officer of Encana on Business Unit, which includes two of of Canada and is a director of Molson companies. January 1, 2006. He is also a member Encana’s key resource plays: Cutbank Coors Brewing Company, TransCanada of Encana’s Board of Directors. Ridge in British Columbia and northwest Corporation and Enerplus Corporation, Bruce Waterman Alberta and Bighorn in west central as well as several other private Bruce Waterman is Senior Sherri Brillon / Executive Vice-President Alberta. Mike also acts as alternate energy-related companies. Vice-President, Finance & Chief & Chief Financial Officer and delegate to the Canadian Financial Officer of Agrium Inc. Responsible for treasury, tax, financial Division President. Randy Eresman risk and risk reporting, internal audit and Randy Eresman is President & Chief Clayton Woitas Sarbanes-Oxley compliance, portfolio Bill Oliver / Executive Vice-President & Executive Officer of Encana Corporation. Clayton Woitas is Chairman & Chief management, strategic and corporate Chief Corporate Officer Executive Officer ofR ange Royalty planning, and legal and corporate Responsible for human resources, Peter Dea Management Ltd. and serves as a secretarial, Sherri has been named on communications, investor relations, Peter Dea is President & Chief Executive director of NuVista Energy Ltd. and Canada’s Most Powerful Women: media relations, community involvement, Officer of Cirque Resources LP. Enerplus Corporation as well as several Top 100 over the past four years. information technology and private energy-related companies and Claire Farley administrative services, including advisory boards. Claire Farley is the co-founder of RPM Mike Graham / Executive Vice-President THE BOW building project. (President, Canadian Division) Energy LLC and is also a director of Responsible for Encana’s Canadian Bill Stevenson / Executive Vice- FMC Technologies, Inc. Division, including key resource plays; President & Chief Accounting Officer Fred Fowler Greater Sierra in British Columbia, Responsible for company-wide Fred Fowler is a Corporate Director Cutbank Ridge in British Columbia and corporate comptrollership and and is the Chairman of Spectra Energy Alberta, Bighorn and Coalbed Methane accounting functions within Encana, Partners, LP. in Alberta, as well as Encana’s Deep including financial and management Panuke project in Atlantic Canada. reporting, accounting research and Barry Harrison accounting systems. Bob Grant / Executive Vice-President, Barry Harrison is a Corporate Director Corporate Development, EH&S Jeff Wojahn / Executive Vice-President and independent businessman. He and Reserves (President, USA Division) is the Chairman of the Board of The Wawanesa Mutual Insurance Company Responsible for ensuring consistency Responsible for all of Encana’s upstream and its related companies. of processes for Encana’s acquisitions exploration and production activities and divestitures, as well as business in the United States, which includes Suzanne Nimocks development, reserves assessment, Encana’s key resource plays at the Suzanne Nimocks is a Corporate competitor analysis, corporate Jonah field and the Piceance Basin in Director and serves as a director environment, health & safety, and the U.S. Rockies, and the Fort Worth of Rowan Companies, Inc. and corporate responsibility. and East Texas Basins in the state of ArcelorMittal. Texas and the Haynesville Shale in Eric Marsh / Executive Vice-President, Louisiana and Texas. Jane Peverett Natural Gas Economy (Senior Vice- Jane Peverett is a Corporate Director President, USA Division) Renee Zemljak / Executive and serves as a director of Canadian Vice-President, Midstream, Responsible for pursuing the Imperial Bank of Commerce, Northwest Marketing & Fundamentals development of expanded natural gas Natural Gas Company, B.C. Ferry markets in North America, including Responsible for positioning Encana Authority and Associated Electric & Gas involvement in government and as a natural gas supplier of choice, Insurance Services Limited. regulatory relations to expand these maximizing the company’s netback markets. Eric also acts as alternate and prices and optimizing the profitability delegate to the USA Division President. of the company’s midstream assets.

Annual Report 2010 / Encana Corporation 9 take a closer look reporting responsibly / to our shareholders

Production of this report Vol/ two Issue / one www.encana.com This publication is printed on FSC-certified paper, made of at least 10 percent post-consumer waste. The two inserts are printed on paper made with 100% post-consumer recycled fibre. The cover paper, along with pages 1-44, were manufactured using natural gas for 10 percent of the manufacturer’s total energy needs. The Management’s Discussion and Analysis and the Financial Statements are printed on a paper manufactured in a plant that uses natural gas to fuel the large dryers needed ADVISORY / Page 72 to dry the coating applied to the paper, and Encana reports in U.S. dollars unless as the primary fuel for its boilers. otherwise noted, and discloses reserves Printing took place at Blanchette Press, data in accordance with Canadian which uses natural gas as the source securities regulatory requirements and select of energy for the furnace that heats supplemental disclosure in accordance with its 28,000 square-foot building, the U.S. regulatory reporting requirements. housing all its manufacturing and For further details please see the Advisory administration operations. regarding Reserves Data and Oil and Gas Information on page 73. Because of these choices, production of this report: > avoided close to seven tons of web/media links greenhouse gas emissions In this report you will see this > saved over 62,000 gallons of water ‘link’ icon, which represents > reduced solid waste by close websites you can visit to find out more to 3,750 pounds information on the topic being discussed.

feedback Join the conversation What do you think of our Annual Report? Learn more about why natural gas Please take a few minutes to provide matters to you. your feedback through our online survey on the effectiveness of our Annual Report www.facebook.com/encana in sharing information about Encana’s www.twitter.com/encanacorp strategy, assets and performance. Your input will be used to guide www.youtube.com/encana subsequent publications. Thank you. www.encana.com/news/2010arsurvey/ Endnotes can be referenced on page 135.

Please recycle this publication Printed in Canada

10 Encana Corporation / Annual Report 2010 Encana knows vehicles fueled by natural gas are the future, so we’ve teamed up with Westport Innovations and ALT fuels to lead by example. Through our Ride & Drive program, interested organizations can take a two-day test drive of an 18-wheel, heavy-duty truck fueled entirely by liquefied natural gas (LNG) as part of their daily operations. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com take the opportunity why invest a diverse portfolio in / with the right balance /16

answering encana the tough financial questions / Q & a with

sherrI brillon /18

a vision for growing shareholder value

a pure-play company / positioned for growth /13 As North America’s largest independent natural gas producer, Encana has a very large, geographically diverse, high-quality portfolio of natural gas assets that include some of the lowest-cost producing properties in the industry.

The gold standard / reserves and resources

reporting /14

www.encana.com/investors/

12 Encana Corporation / Annual Report 2010 why invest in encana / because we are A pure-play company / positioned for growth

mode as quickly as possible. production per share growth plans The second is by attracting joint is a strong dividend yield. In 2010, venture partners to leverage Encana paid dividends of Encana’s capital investment. Over $0.80 per share which, based the past three years, Encana has on the year-end share price, attracted more than $4 billion in represents a yield of approximately third-party capital. Not only has this 2.7 percent. Encana believes As North America’s largest The foundation for a higher growth facilitated an accelerated pace of this combination of growth and independent natural gas rate begins with the quality of development, it has also lowered yield provides investors with a producer, Encana has a very Encana’s resource base. With the overall risk of Encana’s portfolio compelling investment opportunity. large, geographically diverse, a huge land position in many of and improved project economics. Focus on long-term high-quality portfolio of natural the key North American natural value creation remains gas assets that include some gas resource plays, the company “Long-term growth potential for paramount of the lowest-cost producing has an advanced understanding Encana is impressive with the “Our strategy is focused on properties in the industry. of project economics that allows company planning to double high-growth, low-cost margin These long-life resource plays, it to strategically invest in assets production per share in five maximization as we continue which contain a huge inventory with industry-leading potential years (from 2009 base). While our tradition of maintaining the of drilling opportunities, allow for production growth and value the implied 15 percent annual company’s financial strength, for large-scale repeatable creation. Encana’s inventory of compound annual growth rate applying strict discipline to all development programs that drilling opportunities is more than is impressive, we believe the capital investment and continually deliver predictable and profitable 20 years. The depth and quality long-term growth potential capturing operational efficiencies production growth. With its of this inventory is so strong that of the company is likely to be as we grow production. By enormous inventory of low-cost, Encana believes the greatest restrained as Encana manages accelerating our development pace, undeveloped resources, Encana value-creating proposition for its around weak gas prices.” we are advancing value recognition believes it can be the highest- shareholders is to accelerate the Tom Driscoll of our huge natural gas resource growth, lowest-cost, senior natural monetization of this inventory. Managing Director, Barclays Capital inventory. However, we are mindful gas producer in North America. “Overall, when we think about that during periods of low prices, Supported by its tremendous creating value for our shareholders, Use of third-party capital allows we may need to temporarily reel in assets – people and resources there are a few key components Encana to lower costs, increase our growth rate,” says Eresman. – the company is focused on that drive our strategy. The first – capital efficiencies and bring value As evidence of this, Encana’s 2011 increasing the value of each which is at the forefront of all our forward sooner through increased pace of development balances the Encana share, and doing it at the investment decisions – is our focus activity. Joint venture partner funds company’s priorities in responding lowest cost in the industry. on reducing costs. The second are being deployed to develop to near-term uncertainty with stems from the basis that we are assets that would otherwise remain continuing investment in long- “Having built a high-quality opportunity-rich. This provides dormant in the company’s inventory term capacity to grow production resource base, the greatest the ability to accelerate the value for a longer period. “Overall, we’re more aggressively. The company’s value-creating proposition recognition inherent in our vast targeting annual joint venture planning focus is to position itself for our shareholders is inventory very economically,” says investments of between $1 billion to maintain momentum, controlling to accelerate the value Randy Eresman. and $2 billion,” says Eresman. the things it can control and recognition inherent within our reacting to changes in internal and So how will this be achieved? Encana’s employees share an undeveloped resources by external environments with speed Encana has a two-pronged innovative, value-driven corporate delivering a sustainably higher and discipline. approach to accelerate value culture focused on maximizing growth rate than historically recognition. One is increasing margins by increasing operational established, and doing so at development pace to reduce the efficiencies and continually striving the lowest possible cost.” size of its inventory through capital to be the lowest-cost producer. Randy Eresman deployment and by moving forward Complementing Encana’s President & CEO to resource play hub development

Annual Report 2010 / Encana Corporation 13 why invest in encana / because we use THE GOLD STANDARD / reserves and resources reporting

“With 100 percent of our reserves and contingent resources externally evaluated by Independent Qualified Reserves Evaluators, Encana is leading the way in reserves and resources evaluation practices with more consistent and comprehensive disclosure.”

Bob Grant Executive Vice-President, Corporate Development, EH&S & Reserves

Encana has been busy over the past decade, building one of the largest natural gas resource portfolios in North America. The effort has caused Bob Grant to feel the company is sitting on a wealth of opportunities. His view is bolstered by knowing that Encana employs industry-leading reserves and resources evaluation practices and standards of disclosure.

Every year, companies are required to report an estimate of their oil and gas reserves. Typically, an external consulting firm is retained to provide an assessment of a company’s reported numbers. These assessments occur in a variety of forms, separated by the degree of rigour applied by reservoir evaluation engineers. They are:

• Process Review – A consulting firm is retained to review the procedure that an oil and gas firm uses to internally estimate its reserves.

• A udit – A consulting firm is retained to evaluate a portion of the company’s reserves for comparison against the internally generated numbers. Typically, the internally generated numbers are reported.

• Evaluate – A consulting firm is retained to evaluate and estimate all of the company’s reserves. The reported numbers are those determined by the third-party firm.

At year-end 2010, Encana once again retained Independent Qualified Reserves Evaluators (IQREs) to conduct a complete evaluation of not only the company’s reserves, but also its economic contingent resources.

14 Encana Corporation / Annual Report 2010 “It is important for investors to tremendous resource potential GOLD STANDARD IN RESERVES DISCLOSURE take the time to understand “We have described Encana Reserves and Economic Contingent Resources* (Tcfe) the differences in estimates of as being a treasure chest of reserves and resources, the opportunity. Implicit in this 3C / 56.5 evaluation procedures employed description is our belief that 2C / 36.7 1C / 20.0 and the qualifications of those Encana’s vast and diversified engaged. For example, on the undeveloped land base 3P / 27.1 2P / 23.0 subject of contingent resources, contains some of the best 1P / 14.3 Encana reports numbers that have exploitation and development been constrained by economic opportunities in North America.” Reserves Economic Contingent Resources considerations and fully evaluated Brian Dutton Reserves: 1P is proved, 2P is proved plus *Evaluated by Independent Qualified Reserves by independent qualified evaluators, Director, Canadian Oil & Gas Equity Research Credit Suisse Securities (Canada) Inc. probable, 3P is proved plus probable plus possible. Evaluators as at December 31, 2010, employing whereas many other companies do Economic contingent resources: 1C is low a business case price forecast. estimate, 2C is best estimate, 3C is high estimate. not. As a consequence, another company may appear to have a large or larger reported resource base on what might very well be a smaller acreage position in a given play, but their The three classifications of contingent resources have the same degree of reported numbers may include volumes that are currently uneconomic and technical certainty as the corresponding reserves category. For example, have not been independently evaluated.” the 1C contingent resources meet most of the same criteria as proved reserves; most importantly, they have the same degree of technical How did Encana become so well positioned? “Because we entered certainty – a 90 percent probability that the quantities recovered will these plays at an early stage, and amassed large, low-cost, contiguous equal or exceed the estimated number. The major factor that prevents land positions,” says Grant. “Our portfolio includes large positions at them from being included as proved reserves is time. Generally, 1C various stages of development in many of the most prospective plays in contingent resources exceed the five-year regulatory guideline for North America. We are very well positioned – in almost every region in proved reserves development. By adding the qualifier that the contingent which we operate.” resources are “economic”, the resources are high-graded. Shareholders Before the commercial development of unconventional natural gas, a then understand that these resources are expected to be economically company in this industry typically considered itself to be successful if recoverable under the fiscal conditions that Encana expects to prevail. it had more than one or two years of drilling inventory. Today, Encana’s In accordance with the definitions for reserves and resources established drilling inventory is vastly larger than historical levels – about 20 years by Canadian and U.S. regulatory authorities, the IQREs have estimated using the “best estimate” 2P plus 2C figures. Looking at the near-term that Encana’s reserves range from 14.3 to 27.1 Tcfe and the economic development programs, Encana has identified across its resource base a contingent resources range from 20.0 to 56.5 Tcfe. “We believe this is drilling inventory of approximately 37,000 net locations. the gold standard in reserves “The drilling inventory of high certainty reserves and resources locations and resources evaluation that has been identified on Encana’s vast landholdings is both substantial “Encana is exceptionally well practices and disclosure, and and economic, employing a forecast of commodity prices that essentially positioned in unconventional represents the highest level mirrors recent forward strip pricing. This economic inventory provides our gas, in our view, exploiting of corporate governance with company with substantial optionality, not only with respect to pace and its early-mover advantage in respect to reserves and resources focus of development, but also with respect to funding, such as from these resources. Encana’s reporting. It means that Encana’s cash flow, or joint venture initiatives,” says Grant. unconventional gas resource reported numbers are often more base is amongst the largest and conservative compared to those best of all the resource players.” reported by others operating in the Andrew Potter same plays,” says Grant. This is 14.3 Tcfe proved Managing Director, Institutional reserves Equity Research the core reason behind Encana’s CIBC World Market Inc. confidence in the quality of its reported reserves and resources.

100% externally evaluated reserves and resources

Annual Report 2010 / Encana Corporation 15 Managing a suite of assets as geographically why invest in encana / because we have and technically diversified as those in Encana’s portfolio is a dynamic process that a diverse portfolio balances the risks and returns of every dollar / with the right balance invested on a project-by-project basis.

It’s like managing your own Encana’s life cycle approach to personal investment portfolio, portfolio management provides a and many of the same questions strategic framework to evaluate that you would ask yourself projects and make investments that are analyzed and debated by create value by reducing costs and Encana’s management team maximizing margins. It weighs short- every day: Which investments will and long-term goals, divestitures bring growth and returns in the and acquisitions, risks and rewards short term? Where does Encana of investments, and forecast need to allocate dollars today to and actual results, aligning each ensure growth and sustainability in component with the same end goal future years? What assets are no of achieving sustainable growth and longer a strategic focus and can value for Encana shareholders. therefore be sold? What assets 1 Strategic Plan are available that can be added The strategic plan looks closely at to Encana’s portfolio in order the company’s overarching strategy to successfully execute on the by focusing on each operating company’s strategic objectives? division’s resource assessments. In your own portfolio, you might This is a detailed, bottom-up ask similar questions to meet examination of each operating your goals: Should I pay down my area’s drilling inventory, right down mortgage or invest more in my to type curve analysis and cost retirement fund or my children’s structures. This plan forms the college savings? The answer is basis for establishing long-term never simple, and finding a balance goals and for the second phase of between long- and short-term the portfolio process, Encana’s objectives requires discipline. annual budget. “We have to fund a balanced 2 annual budget / portfolio,” says Corey Code, Project Approval Requests Encana’s Vice-President, Portfolio When the annual budget is Management and Assistant set, there are both economic Treasurer. “It’s critical that we hurdles that must be met prior think about both the short- and to investment and qualitative the long-term implications of our considerations that underscore the investments. We want to deliver company’s investment decisions. sustainable growth and value to our “It’s about measuring our strategic shareholders, not just this year, but assets – those resource plays every year.” that are very young with many years of growth ahead – and our developed assets that generate strong returns today,” says Code.

16 Encana Corporation / Annual Report 2010 Encana’s life cycle approach to portfolio management focuses on five key steps:

1 Strategic plan 2 Annual budget / 3 Acquisitions and 4 Peer reviews 5 Look backs Project Approval divestitures Requests (PARs)

These considerations might include costs and maximizing margins by Louisiana to optimize recoveries or investments that must be made, “Encana has a diverse portfolio divesting non-core properties that reduce capital or operating costs such as drilling primarily to retain of high-quality/low-cost natural no longer fit future development may provide an important insight land and resources. With land gas assets across Canada plans or have higher costs. To this into what might work better in the retention – as in the Haynesville, for and the U.S. Encana’s potential end, Encana divested a total of Horn River in northeastern British example – funds are invested today to double production volumes more than $880 million of assets Columbia, or vice versa,” says to hold the promise of development will increase shareholder value in 2010. Encana also continually Code. This knowledge-sharing, in tomorrow. This is like investing over time.” assesses potential acquisition turn, forms the basis for continuous in an education fund for your Andrew Fairbanks opportunities that would improvement and optimization children’s future – investing today Director, Canadian Energy Research, high-grade its portfolio of of company operations, while Bank of America Merrill Lynch for the promise of development assets and sharpen its focus simultaneously assisting with tomorrow. Still in its formative on accumulating low-cost assets cost reduction. “Deciding which projects years, Encana’s Haynesville with growth potential. are funded each year is an 5 look backs resource play produced an average evolutionary process of continuous 4 peer reviews Encana’s portfolio management of 303 MMcfe/d in 2010. This improvement that marries Encana’s Peer reviews and look backs process involves looking back on volume does not reflect its potential resource inventory with the occur throughout the year and each project that received approval because recent investments were overarching strategic direction work hand-in-hand to improve and comparing forecast and actual directed to land retention, rather for the company,” says Code. results and hold operating teams results. Tracking forecast to actual than optimization of the assets. “With an inventory as significant accountable for forecast results. results allows Encana to look for Over time this will change, because and robust as Encana’s, there’s Peer reviews foster a transparent, trends in its investment decisions Encana’s Haynesville asset has always more in the hopper, collaborative learning environment to compare those trends across the potential to produce more than always more opportunities that that facilitates knowledge-sharing the entire organization. This creates 1 Bcfe/d by 2014. we might have funded given and innovation among company greater consistency in forecasting – The selection of funded assets different circumstances. Encana’s leaders and technical teams. a grounding in reality that undergoes further scrutiny through huge resource inventory, in part, People from different areas of reinforces strategic direction and the Project Approval Requests is why it’s so important that we expertise – geology, engineering, provides increased confidence in (PAR) process. This process allows high-grade our assets through an geophysics, finance – roll up their the company’s ability to operating teams to present their ongoing divestiture program.” sleeves to analyze development achieve its goals. business plans for each asset. The plans. This results in a compressed 3 PAR outlines the deliverables and Acquisitions and divestitures learning curve in areas such as economics for each asset, allowing Encana continually assesses and new project development and the for comparisons across the high-grades its asset portfolio ability to accelerate understanding company. This screening process through its acquisition and of the potential implications of ensures capital is allocated divestiture program. This third step technological innovation. “Knowing efficiently and in alignment with in the portfolio management life what new technical developments Encana’s goals and strategy. cycle focuses on reducing supply are working in the Haynesville in

Annual Report 2010 / Encana Corporation 17 Executive Vice-President

18 & Chief Financial Officer Q &AwithSherri. targets. Thefollowingisa as itworkstowards itsgrowth the company’s balancesheet is chargedwithstewarding Encana’s ChiefFinancialOfficer, value inthefuture. SherriBrillon, deliver evengreater shareholder operational efficiencies will focus oncostreduction and higher growth rate.Continued company pursuesasustainably investment decisionsasthe at theforefront ofEncana’s always beenandwillremain Financial stewardship has Encana Corporation D S M credit ratings S S (as atDecember31,2010) Credit Ratings trong investment grade grade investment trong & enior Unsecured D B oody’s – Baa2, stable –Baa2, oody’s – BBB+, stable P –BBB+, (low), stable –A(low), RS Sherri Brillon why investinencana/becausewe financial questionsfinancial / Q & answer tough the / Annual Report2010 ebt with sherri B sherri A with • the followingthree: As well,wehaveanumberofotherleversatourdisposalwhichinclude quickly whenthepricingenvironment improves. position tofundour2011program, butitwillalsoallowustorespond The strong financialpositionatyear-end 2010notonlyputsusinagood of about13years. comprised oflong-term,fixedratedebt,withanaverage remaining term A and debttoadjustedEBITDAwas1.4times,onatrailing12-monthbasis. December 31,2010,Encana’s debttocapitalization ratiowas31percent 40 percent andadebttoadjustedEBITDAoflessthan2.0times.As W flexibility ofourbalancesheet. steward tothesamefinancialmetricsandpreserve thestrength and means thateveninalownaturalgaspriceenvironment, weplanto portfolio by divesting non-strategic portfolio bydivesting non-strategic continually seekto high-gradeour assets topurchase shares. W from divestitures of producing increases andbyusingproceeds achieved through production This pershare growth istypically growth overthenextseveralyears. significant production pershare A/ Q/ A/ Q/ dditionally, all of e targetthecompanytohaveadebtcapitalizationratiooflessthan credit facilities. and $5.1billionundrawnavailableunderourcommittedbank First, weentered 2011with$0.6billionincashandequivalents

  apital discipline is a cornerstone ofourbusinessstrategy.Capital disciplineisacornerstone This ncana plans to achieve Encana planstoachieve come attheexpenseofcapitaldiscipline? Encana’s 2011capitalcommitments throughout 2011,willtheexecutionof If lownaturalgaspricespersist What isyourapproachtosharepurchases? rillon E ncana’s outstandingdebtatyear-end 2010was e e of about$500million, reducing the common shares atatotalcost approximately 15.4million In 2010,wepurchased sale ofthoseassets. production thatresults from the to offset thedecrease inpershare purchase Encanashares allowsus of proceeds from divestitures to assets. Where appropriate, theuse

November 30,2010. that were outstandingat percent, 5 ofthecommonshares orapproximately million, 36.8 has theabilitytopurchase upto Normal CourseIssuerBid,Encana 31, 2010.Underourcurrent about 736 millionasatDecember number ofshares outstandingto • • development activity. sooner through increased recognition forward efficiencies andbringvalue lower ourcosts,increase capital third-party capitalallowsusto behalf for2011.Leveraging committed toinvestonEncana’s capital thatpartnershave $300 millioninjointventure Third, wehaveapproximately projected dividend. programs andfundour on ourcapitalandoperating to executemore consistently cash flow, thereby allowingus provide greater certaintytoour 31, 2011).Hedginghelps of $5.75perMcf(asatJanuary production atanaverageprice expected 2011dailynaturalgas about 50percent ofour Second, wehavehedged

A Q/ A/ Q/ on adiscountedbasis. Asaresult, use ofhistoricalprices whichare whereas U.SGAAPrequires the prices onanundiscountedbasis GAAP utilizesforecast commodity value ofreserves isthatCanadian primary difference in calculatingthe to thevalueofthosereserves. The quantities, thenitiswrittendown PP&E exceedsthevalueofreserves value ofreserves quantities.Iftotal to prescribed calculationsofthe equipment (PP&E))are compared capitalized costs(property, plantand to beperformedwhere unamortized accounting principlesrequire tests States (U..)GAAP. Bothsetsof Principles (GAAP)andUnited Generally Acceptedccounting accounting underCanadian differences betweenfullcost represented anapproximate $590millionpayouttoourshareholders. and are assessedonaquarterlybasis.In2010,ourdividendpayments average. Dividendpaymentsare atthediscretion oftheBoard ofDirectors December 31,2010,ourdividendyieldisabouttwicethatofpeergroup 2.7 percent basedonanNYSEclosingshare priceof$29.12as assets andourbusinessmodel.W reflects theconfidencethatwehaveinlong-term our profitability of value toourshareholders. Thedistributionofastrong, stabledividend /

  The dividendisanintegralcomponentofEncana’s strategytodeliver This isprimarilyaresult of than manyofitsU.S peers? Why isEncana’s DD&Aexpensehigher price environment? dividend inthislownaturalgas Is Encanaconsideringloweringits ith adividendyieldofapproximately . peers. comparability toour U.Speers. to provide readers withimproved Consolidated FinancialStatements been disclosedinNote21ofour GAAP accountingmethodshave on Encana’s results utilizing U.S with DD&A.Formore detail,impacts greatest impactbeingassociated million ($3.17pershare) withthe U.S GAAPitwouldbe$2,343 million ($2.03pershare) whileunder areearnings reported as$1,499 Canadian GAAPEncana’s 2010net going forward. T and amortization(DD&A)expense decreases indepletion,depreciation lower depletionratesresulting in 2009 and,consequently, have prices experiencedin2008and downs duetodecliningcommodity recorded significantcostwrite- some ofourU.Speershave o illustrate, under o illustrate,under $0.80 per share $0.80 pershare 2010 annual dividend

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2.70% dividend, st

f $0.80/share rong yi e ld Annual Report2010

/ Encana Corporation

Q & A with Sherri Brillon 19 Our latest major land acquisition in southeast Texas, named the Brent Miller Field, honours a late employee whose work embodied our reputation as a first-mover on promising opportunities. Attracting, retaining and honouring the best and brightest people, as staff, contractors and service providers, is at the heart of our business strategy. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com take advantage resource play hub evolution / continuous a culture of improvement /24 innovation

completion costs drop 60 percent / the horn river shale /25 delivering high performance cost savings pioneering a model in the / where innovation and efficiency meet /22 haynesville Encana’s resource play hub strives to reduce operating and capital costs while / setting continually improving operating efficiencies to maximize the margins realized on every encana apart /26 single gas molecule produced.

Company-wide Technology collaboration in action / knowledge- / haynesville

sharing /27 geological operations

pilot project /28

www.encana.com/operations/hub/

Annual Report 2010 / Encana Corporation 21 a culture of innovation / we are working at pioneering a model / where innovation and efficiency meet

Encana’s resource play hub model strives to reduce operating and capital costs while continually improving operating efficiencies to maximize the margins realized on every single gas molecule produced. Implemented across Encana’s entire North American asset portfolio, the resource play hub is an innovative and efficient production model tailor-made to reduce natural gas production costs and environmental impact.

What is a Resource Play Hub? A resource play hub is created when multiple deviated or horizontal wells are simultaneously drilled, completed, tied in and produced from a single surface location, or pad, where Encana, along with its service providers, can optimize every part of the process. The resource play hub toolbox includes fit-for-purpose drilling and hydraulic fracturing equipment, standardized processes, new technology innovation, peer reviews and vendor contracts aligned with efficiency gains. Encana’s first resource play hub was pioneered in the Piceance Basin in 2005 where, due to challenging topography, a single pad with 52 deviated vertical wells was developed. Company-wide expertise has advanced so much since then that a single resource play hub in the Horn River, for example, is designed to drain an area of about four to six square miles. At the heart of this design are 16 long reach, multi-stage horizontal wells with roughly 440 hydraulic fractures in total, where each fracture essentially functions as a vertical well would, but at a fraction of the cost.

How a resource play hub ultimately “Encana’s razor-sharp focus on operates, or even looks, varies driving down its cost structure depending on the unique geological via its gas manufacturing and above-ground features existing process is right on the mark.” at each of Encana’s plays. The

Greg Pardy fundamental goals of all resource Managing Director, play hubs, however, remain Co-head, Global Energy Research RBC Capital Markets unchanged: per unit cost reduction, a focus on efficiency gains and further innovation combined with minimal surface disturbance. This highly disciplined approach has already begun to pay off; in 2010, Encana reduced overall operating cost guidance by more than 10 percent while its corporate supply cost – the flat NYMEX gas price that yields a 9 percent after-tax rate of return – fell to $4.05 per Mcf.

22 Encana Corporation / Annual Report 2010 “Learning in parallel equals an accelerated rate of production. Through sharing and collaboration, seeing what works for other teams and what doesn’t, each team can increase the efficiency of its own resource play hub through the knowledge accrued and shared company-wide. As a concept, the resource play hub is very Mike Graham much about tapping into the talents and Executive Vice-President & expertise of our people.” President, Canadian Division

Along with reducing costs and optimizing efficiencies, Encana’s resource play hubs are designed to improve environmental and safety performance. This disciplined method means rigs and hydraulic fracturing crews need only travel a short distance from task to task, while supplies can be delivered in bulk to centralized resource play hub locations. The net result is enhanced environmental and safety performance markers – reduced vehicle traffic and emissions, less movement of fluids and chemicals, suppression of dust – which, when taken together, demonstrate the resource play hub’s importance in maintaining Encana’s social licence to operate. In the North Louisiana operating area, to cite one example, driving and injury risk has been reduced by 83 and 66 percent, respectively, for drilling and completion due to decreased heavy truck trips.

The Resource Play Hub of the future Most cost improvements to date using the resource play hub model have resulted from below-ground technical advancements. There remains tremendous opportunity to optimize and streamline the above-ground equipment and logistics, with possible further savings achieved by converting fee-for-service mobile equipment into a centralized facility. In much the same way Encana developed fit-for-purpose drilling equipment a few years ago, the company has engaged industry players to develop fit-for-purpose completions equipment that is designed and optimized for specific reservoir characteristics. In the Haynesville for example, where Encana is drilling high-pressure/high-temperature wells, equipment that is durable enough to sustain a 24-hour per day fracturing operation is needed. Simultaneous with this initiative, Encana is working with service providers to establish longer-term work commitments that provide equipment and crew certainty, efficiency and cost advantages, as well as control and direction of environment, health and safety standards.

Annual Report 2010 / Encana Corporation 23 a culture of innovation / decades of experience resourcE PLAY HUB evolution / continuous improvement

Resource play hub has been pioneered by Encana through decades of innovation and knowledge-sharing. E A R

LY Shallow CBM Jean Marie

OR IGINS • repeatable processes • technological advance with horizontal drilling • incremental savings achieved and 3D seismic methods over thousands of operations • level loaded programs

Piceance • multi-well pads • repeatable execution with

a concentrated resource

Jonah • concentrated resource • technical advance with reservoir understanding and well spacing future evolution

Haynesville and Horn River cu

• concentrated resource rre

• repeatable execution nt • level loaded program • horizontal wells • multi-well pads

Resource play hub’s physical characteristics evolved from early origins in southern Alberta shallow gas wells to the 21st-century model of natural gas production, a model sure to evolve in coming years as innovations and efficiencies are added through technical expertise and knowledge-sharing.

24 Encana Corporation / Annual Report 2010 a culture of innovation / developing efficiencies completion costs drop 60 percent / the horn river shale

In the Horn River of northeastern British Columbia, the resource play hub approach efficiency. The other half focuses on was implemented immediately after the successful completion of a 2009 down-spacing continuous operations. Due to Horn River’s remoteness and minimal pilot project that tested the commerciality of pad development. surface constraints, resource play hub application in the play means Building on this successful initiative, “We have seen our costs drop bit selection and continuous 24-hour operations, centralized, Encana’s 2010 Horn River program dramatically as we have moved into improvement,” says Kevin Smith, modular facilities and full use of was designed to drill long reach, the resource play hub process. Vice-President of the Fort Nelson on-site horsepower for multi-stage horizontal wells that On the drilling side, we have Business Unit & Canadian completions. This systematic ultimately developed more of the reduced our total unit costs of Unconventional Gas Exploration. approach allows for year-round resource, more efficiently, at a horizontal lateral length by more operations, despite harsh winters Lowering the cost per lateral foot lower cost and all from a single than 45 percent through an in the northern locale that have drilled is one half of the recipe for surface location. integrated team approach, better historically slowed activity.

“On the completions side, horizontal multi-well pad costs have dropped almost reducing the surface impact: gaining operational efficiency 60 percent over the past three years to an actual 2010 Resource play hub site completion cost per fracture 1.24 miles of about $450,000. The (2 km) main drivers have been more hydraulic fractures per pad 3.73 miles and 24-hour operations to (6 km) spread out the fixed costs, 1.68 miles having an inventory of fractures (2.7 km) ready to pump to avoid non- productive time and the use of a subsurface, non-potable water source.”

Kevin Smith Vice-President, Fort Nelson Business Unit & Canadian Unconventional Gas Exploration

/ 1 acre of surface disturbance to / The pad site at 984 x 820 feet / On the current pad we will drain 4.6 / 25 fracs x 16 wells = 400 fracs access 164 acres of reservoir. (300 x 250 metres) is about 18 acres. sections or 2,950 acres of reservoir. from one pad.

Annual Report 2010 / Encana Corporation 25 a culture of innovation / drilling down to cost savings in the haynesville / Setting encana apart

Three unique aspects of Encana’s operations in the Haynesville set the company apart from its competitors – drilling efficiencies, the Design of Experiment process and hydraulic fracturing efficiency.

drilling efficiencies design of experiment hydraulic fracturing efficiency The resource play hub multi-well Haynesville completion designs In 2009, Encana pumped pad approach in key areas of have continued to be optimized 420 stages in the Haynesville the Haynesville has resulted in through the use of the Design with an average of one hydraulic significant drilling cost reductions. In of Experiment (DOE) process, fracturing crew. In 2010, 1,560 the Mid-Continent Business Unit’s which requires tight control on stages were pumped with an focus area in Red River Parish, certain completion parameters average of two crews. Among wells drilled in 2009 averaged $5.8 while systematically varying others the reasons for this gain in million to case and suspend versus to determine their impact on efficiency were equipment move $5.2 million in 2010, a 10 percent well performance. The resultant times decreased by more than reduction. Likewise, in the De Soto standardized completion design 60 percent, pump-down times Parish focus area, teams averaged delivered a significant improvement were reduced by 45 percent and $5.2 million in 2009 to case and in cost management, contributed operational non-productive times suspend, compared to $4.6 million to increased operational fracturing were cut by 20 percent. Through in 2010, an 11 percent reduction. efficiency and increased the these and other initiatives, the These significant cost reductions estimated ultimate reserves or number of stages pumped per are attributed to several key recovery (EUR) by 9 percent per month increased 105 percent from efficiencies and performance gains. 1,000 feet of lateral length. It also 82 in January to 168 in December Multi-well pads used in conjunction resulted in the use of less expensive while utilizing two crews with Encana’s fit-for-purpose proppant without observing throughout the year. rigs with skidding capability have any detrimental effects on EUR, reduced the overall surface footprint reducing proppant costs by more Through the combination of and pad cost, and enabled a batch- than 45 percent. successfully implementing the DOE set approach to drilling as well as a and the hydraulic fracturing crew skidding alternative to traditional rig efficiency improvements, a moves. Managed-pressure drilling 122 percent price increase in has resulted in significant rate of services and product was held to a penetration increases, reducing modest completion cost increase of spud to rig release times by three 5 percent per 1,000 feet completed. to five days.

26 Encana Corporation / Annual Report 2010 a culture of innovation / vibrant teamwork company-wide collaboration / knowledge-sharing

Formed in 2010 as a subgroup of Encana’s Shale Technology Exchange Partnership (STEP), Encana’s resource play hub team is helping to drive a dramatic shift in an already vibrant knowledge-sharing culture. Cross-border collaboration – peers sharing knowledge and experience – is this team’s mandate. “We have to recognize that the only way we’re going to be the lowest- cost producer in North America is by cross-border collaboration and sharing of new knowledge and best practices,” says Mark Taylor, Horn River Team Lead and “We saw the spirit of partnership and leader of the STEP resource play hub subgroup. knowledge exchange come full-circle. The Piceance has a mature resource play While healthy competition between business units drives continuous hub program and they helped us get the improvement at each of Encana’s resource plays, sharing technology, Haynesville going. After coming back to innovation and knowledge via peer reviews is embedded in the help again, they were able to discover company’s culture and business practices. This culture of collaborative some modifications that would increase learning has been further enhanced when the resource play hub efficiencies in their own process. This was subgroup recently nominated top company talent to lead the inaugural Jeff Wojahn very gratifying for both programs.” Executive Vice-President & Go Team, a formal working group comprised of experienced personnel President, USA Division with the primary purpose of expediting resource play hub operations.

The Go Team made its first stop in the Mid-Continent Business Unit’s hub locations, then one day in Sabine visiting three locations. The Go Texas Sabine operating area. In North Louisiana (NLA), the Haynesville Team shared its members’ expertise with the Sabine team and left with play has seen significant advancement in the resource play hub model. knowledge and perspective from both NLA and Sabine that, in turn, Go Team members spent one day in NLA visiting active resource play may also be applied elsewhere in the company, the Horn River or the Montney, for example.

Collaboration, Knowledge-Sharing and Innovation “A key goal for Encana is to accelerate the pace of learning and to drive down the supply cost of our resource play hubs. Although each of these plays will require a unique development approach to maximize value creation, they have more similarities than differences. As a result, the concepts and operating practices around execution efficiency, integrated supply management strategies and technology improvements span the corporation. It is imperative that we harness the collective ideas, expertise and talents of our people across the organization. We are transferring and sequentially implementing our successes across the company in real time. This teamwork is essential in order to keep Encana at the leading edge of performance,” says Wojahn.

Encana divides resource play hub initiatives into three levels: the micro level, which addresses pad development; the macro level, which focuses on the entire field development and resources for key initiatives, such as water management; and the enterprise level, which strengthens an already strong culture of knowledge-sharing across plays.

Annual Report 2010 / Encana Corporation 27 a culture of innovation / sharing knowledge technology IN ACtion / haynesville Geological Operations Pilot Project

Initiated as a joint effort between The main objective is to better Haynesville and Horn River manage the high rig count and geologic staff, the Haynesville create standard procedures for CALGARY geological operations geological input during the drilling of pilot project highlights the wells. In the Haynesville, well path knowledge-sharing that takes changes are often required with little place across Encana’s resource advance notice and are based on plays and are central to the real-time data. resource play hub. Well monitoring takes place via a In a structurally complex play such remote geological steering centre in 2,113 miles as the Haynesville, characterized (3,400 km) Calgary, complementing the by faulting and large dip changes, on-site monitoring by the 24-hour, seven-day geological Haynesville geologic staff. The monitoring manages and often pilot project initially ran eight rigs eliminates problems that can lead to from the Calgary control room, out-of-zone drilling and decreased expanding its support function to production. It amounts to an extra running 24 Haynesville rigs in 2010, set of eyes that helps to decrease while at the same time providing costs and improve production rates. well monitoring for Encana’s Michigan Collingwood Shale play drilling team.

HAYNESVILLE

Success measurements of the pilot project include:

• better communication between geology and drilling • fewer operational issues with wells • reduced drilling time and costs

28 Encana Corporation / Annual Report 2010 When 13-year-old Maggie took the initiative to compare natural gas to coal for her school project, we gave her an interview with Eric Marsh, our Executive Vice-President. Learning that natural gas produced 50 percent fewer CO2 emissions than coal sold Maggie on her energy future. Encana now uses Maggie’s story to teach other kids about cleaner, greener options. Take a closer look. We are Encana.

Search for Maggie’s Energy Moment at www.youtube.com/encana taking the lead

canadian natural gas vehicle summit the / SHOWCASING THE NEXT TRANSPORTATION natural gas FUEL /33 economy

meeting the need for cleaner fuel

the common sense alternative / clean red river CNG Filling and affordable /31 station / making Encana’s Natural Gas Economy team made significant progress in 2010 along the road to creating a cleaner, more economically viable energy future powered by natural gas. natural gas accessible /34

changes in policy / replacing coal with

natural gas /36

hitting the road with LNG inside the trucks / cleaner and more energy industry

affordable /35 / drilling for gas with gas /34 Coal retirement

Endnotes in articles can be momentum /36 referenced on page 135. www.encana.com/operations/gas/

30 Encana Corporation / Annual Report 2010 the natural gas economy / increasing demand The mandate of Encana’s Natural Gas the commOn sense Economy team is to showcase, through advocacy and pilot projects, that natural alternative / clean and affordable gas is the domestic solution for a secure energy future, a common sense, economic alternative for transportation and power generation.

Through both grassroots more affordable and cleaner community efforts and high-level fuel alternative. discussions with key policy- In addition to its own fleet of natural makers, the team has strengthened gas vehicles, Encana continues the building blocks of a new energy to walk the talk in all aspects of portfolio for North America, one its operations. In a truly reciprocal that is cleaner for the environment. relationship, Encana also uses What are the economic benefits natural gas to power drilling rigs in of this new portfolio? In building some areas and to meet some of new infrastructure and creating its power generation requirements, new markets for natural gas, these as detailed in the series of stories projects are also contributing to on the following pages. Encana has stronger economies in Canada “As the cleanest-burning fossil taken a leading advocacy role to and the United States. Every fuel, natural gas represents make natural gas the centrepiece one percent increase in natural an affordable, readily available of North America’s energy portfolio. gas production creates up to source of energy that allows The potential resulting legislation 35,000 (2) jobs. In addition, the vast us to hit the ground running points the way forward for cleaner- domestic abundance of natural as we aim to achieve the burning natural gas to replace gas offers a secure, made-in-North emissions reduction targets coal as the preferred fuel in the America energy solution, potentially our society has set. Tapping power industry. into the vast reservoirs of North reducing foreign oil dependence The education and advocacy America’s natural gas supply and the massive wealth transfer efforts of the NGE team have – a supply estimated to last these imports entail. Displacing been undertaken on a simple 100 years (1) or more based on oil for transportation purposes premise; namely that natural gas current consumption rates – could positively impact the North makes the most sense as North will strengthen the domestic American trade balance by a America’s fuel of choice. economy and wean us off of staggering average of $160 billion (3) It makes the most sense in terms foreign oil. Natural gas makes every year. of job creation and added value sense for the environment Encana is committed to leading to the North American economy. and the economy in meeting by example by converting its It makes the most sense as the North America’s growing own vehicle fleets to natural gas preferred fuel for transportation and energy needs.” and building the necessary filling power generation to dramatically stations to demonstrate the Eric Marsh reduce greenhouse gases. And Executive Vice-President, Natural Gas fuel’s utility as a transportation Economy & Senior Vice-President, it makes the most sense both alternative. To this end, the USA Division environmentally and to consumers’ company has already witnessed a pocketbooks. With all these factors Encana’s Natural Gas Economy shift in the transportation sector, considered, natural gas makes the (NGE) team made significant including recent initiatives by major most sense as a sustainable energy progress in 2010 along the trucking companies interested in solution for future generations. road to creating a cleaner, converting their fleets to this safe, more economically viable energy future powered by natural gas. Annual Report 2010 / Encana Corporation 31 From ice chillers to plastics to polyester fibre, natural gas is an unignorable part of your everyday life. Modern manufacturing processes turn this clean, affordable, abundant resource into solid products – building both innovation and economic stability. Meeting growing global demand calls for new ways of looking at things. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com opportunities for the natural gas economy / driving the need market growth canadian natural gas vehicle summit / showcasing the next transportation fuel

The transportation sector is the single largest contributor The shift to natural gas is already occurring in the transportation to greenhouse gas emissions, making it all the more urgent sector across North America, as seen in the examples below.

to create a low-carbon economy based on natural gas. Government effectively combining their • A report facilitated by Natural strength in innovation and safety. Dropping the emissions the service sector, upstream Resources Canada confirms NGVs on the Road odometer and fueling the North oil and gas producers and policy-makers recognize the • Twelve clean-burning competitive and environmental American economy were the trucking companies. compressed natural gas (CNG) advantages of natural gas usage key themes driving the inaugural Ford taxis serve the City of The event focused on market in the medium- and heavy-duty Chicago as a part of Taxi Encana-hosted Canadian Natural transportation sector. The report, growth opportunities in a Medallion Management’s goal of Gas Vehicle (NGV) Summit held in titled Natural Gas Use in the reducing emissions by Canadian transportation sector Canadian Transportation Sector Calgary on October 28, 2010. 25 percent. (5) predominantly fueled by less Deployment Roadmap, brought The first of its kind in Canada, environmentally friendly gasoline together stakeholders from • In January 2011, Dallas Area government and industry, including Rapid Transit unanimously the summit attracted more than and diesel. reps from Encana, to discuss approved the purchase of 452 100 delegates from municipalities, strategies and recommendations buses powered by CNG. The for increasing natural gas usage. buses will begin to serve Dallas and 12 surrounding cities in 2013.(6) • The Government of Quebec has introduced policies to foster a • In its continued efforts to reduce greener transportation future air pollution in one of America’s by offering incentives for trucks smoggiest regions, LA County or tractors that run on liquefied Metropolitan Transportation natural gas (LNG). Authority retired its last diesel bus in January 2011.(6) Infrastructure • The City of Los Angeles is • In December 2010, The Kansas currently building the largest LNG/ City Public School District LCNG station in the world to purchased 47 Thomas Built serve its growing fleet of LNG- HDX rear engine buses, (7) powered vehicles.(4) powered by CNG. • Terasen Gas, the largest distributor • In February 2011, UPS added of natural gas in British Columbia, 48 LNG 18-wheeler trucks to its will fuel the Vedder Transport hubs in Ontario, California and natural gas fleet by constructing Las Vegas, Nevada. A rep from a LNG refueling station in UPS said LNG is the only long- (8) Abbotsford, British Columbia term and viable option to diesel. in 2011. • The purchase of 50 Peterbilt 386 LNG trucks makes Vedder Original Equipment Manufacturers Transport Ltd., servicing southern • For the eighth consecutive year, British Columbia, one of the the American Council for an world’s most environmentally Energy-Efficient Economy named clean transporters. the Honda Civic GX natural gas car the Greenest Car of 2011, beating • Coinciding with Encana’s out other alternative-fuel cars like inaugural Canadian Natural Gas the Nissan Leaf and Toyota Prius. Vehicle Summit in October 2010, Robert Transport purchased • Two leading providers of alternative 180 Peterbilt LNG trucks from fuel systems for heavy-duty Westport Innovations Inc. vehicles, FAB Industries and (see story on page 35). Enviromech Industries, merged to form Agility Fuel Systems,

Annual Report 2010 / Encana Corporation 33 the natural gas economy / building the infrastructure red river CNG Filling station / making natural gas accessible

Natural gas costs, on average, one-third less than conventional gasoline at the pump. (9) With more than 150 NGV models now being manufactured (10) and a growing network of fueling stations, NGVs are an ideal solution to North America’s growing petroleum dependence. Changing consumer habits when it Such was the case on comes to the transportation sector November 30, 2010, when requires more than education Encana officially opened an NGV and advocacy. Sometimes it fueling station in Louisiana’s Red

involves building the necessary River Parish. It’s another example Natural gas vehicles infrastructure to support a more of Encana demonstrating through sustainable energy equation, action on its mandate by making There are currently more than Unlike gasoline, CNG dissipates into the 110,000 NGVs and 900 NGV fueling atmosphere in the event of a vehicular one that’s good for the economy natural gas more accessible as a stations in the U.S., with more accident, rather than pooling on the and the environment, as well as transportation fuel. being added.(11) ground and creating a potential fire demonstrative of the practicality hazard. In addition, the fuel storage The Red River CNG Filling Station NGVs work similarly to gasoline- and accessibility of natural gas as cylinders used in NGVs are sealed is the first of five that Encana plans powered vehicles but with one notable a transportation fuel. to prevent any fuel spillage or to build to service its NGV fleet, exception: enhanced safety. evaporative losses. the rest of which are scheduled to come on-stream in 2011.

Natural gas offers a more environmentally sound fuel to drive our cars, heat our homes and, in a truly reciprocal relationship, drill for more natural gas.

An innovative 2010 project in Encana’s Mid-Continent Business Unit made the notion of running a drilling rig on the cleanest-burning fossil fuel go from pipe dream to reality in little more than a year.

Project leaders chose a portable system whereby fuel is trucked to drilling locations. The group used LNG, which at nearly 100 percent methane, offered the cleanest solution and allowed for sufficient on-site fuel amounts with a manageable footprint.

Ultimately, two rigs in Louisiana, Ensign 150 and 151, were deemed appropriate candidates for natural gas conversion. After six months of work, the first LNG system was completed in June 2010 and Ensign’s the natural gas economy / louisiana’s ensign 150 and 151 generator skids were retrofitted with natural gas engines. The generator skids and LNG system then met in Mont Belvieu, Texas – and it was a match made in heaven. Testing ended July 20 and the equipment was inside the energy moved to the Shreveport, Louisiana area. On August 27, the project recorded another milestone when Ensign 151, running on LNG, officially industry spudded a well in northern Louisiana. / drilling for gas with gas

34 Encana Corporation / Annual Report 2010 the natural gas economy / delivering the fuel of choice hitting the road with LNG trucks / cleaner and more affordable

Natural gas is becoming a fuel of choice in the heavy-duty truck corridors of North America, which ship us the goods necessary for our daily lives. It’s the common sense solution for the transportation sector to reduce emissions through the use of an affordable fuel – and this message has translated into meaningful actions.

On October 28, 2010, Westport companies with an estimated distributor. The company plans Natural gas travelling roadshow Innovations Inc. (Westport) 1,100 tractors and 2,300 to install three LNG filling stations (12) announced it had received employees. The new trucks will be along the Ontario-Quebec 401/ During the spring and summer of 2010, a purchase order from Robert used on line haul routes between Highway 20 corridor – a critical first Encana teamed up with Westport Transport for 180 Peterbilt LNG Montreal and Quebec City, and step in realizing Encana’s vision to stage a travelling roadshow trucks. All will be equipped with the Montreal to Toronto. for an NGV highway network in on the merits of natural gas as a Westport HD System, consisting of Canada. This eastern thoroughfare transportation fuel. An 18-wheel, Fueling the new fleet is Gaz heavy-duty truck fueled entirely by the GX 15-litre engine, proprietary would complement an envisioned Métro Transport Solutions, a LNG was displayed at various stops in Westport fuel injectors, LNG fuel western NGV highway network wholly owned subsidiary of Gaz Colorado, Utah, Kansas and Wyoming, tanks with integrated cryogenic fuel linking the cities of Calgary, Métro, Quebec’s main natural gas racking up nearly 3,500 miles (5,633 pumps and associated electronic Edmonton and Vancouver. kilometres) during its four-month tour. components to facilitate robust Part of the initiative included a ride performance and reliable operation. “Operating natural gas trucks helps reduce one of our largest and drive program where interested organizations test drove the truck Robert Transport, based in input costs and reduces our carbon footprint. This is a win-win for two days as part of their daily for both the environment and our company.” Boucherville, Quebec, is one of operations. Major distribution Canada’s largest trucking-for-hire Claude Robert companies such as Ensign Drilling and President & CEO, Robert Transport the Dairy Farmers of America, as well as several municipalities and counties, cleaner, healthier air “This is the single largest order emissions reductions for Natural Gas Vehicles partook of this opportunity to discover for LNG trucks powered by how to lower their greenhouse gas Westport HD. It’s evidence Carbon dioxide 20-30% emissions by up to 22 percent with no Carbon monoxide 70-90% loss in efficiency. that natural gas is gaining Sulphur dioxide 99% momentum as a mainstream Nitrogen oxide 75-95% “It’s not enough to just tell people that transportation fuel in Canada.” Particulate matter 90% natural gas is the only alternative fuel Volatile organic compounds 89% comparable to diesel that can move a David Demers Source: NGVAmerica, Encana estimate, Environmental Protection Agency (EPA) heavy-hauler; they want to experience CEO, Westport Innovations Inc. the phenomenon for themselves,” says David Hill, Vice-President, Natural Gas Economy Operations.

Annual Report 2010 / Encana Corporation 35 the natural gas economy / coal retirement momentum inside the energy industry / coal retirement momentum Encana’s advocacy efforts to make natural gas the preferred fuel for power generation have made policy-makers sit up and take notice.

the natural gas economy / colorado’s clean air, clean jobs act Encana continues its advocacy efforts in collaboration with ANGA (America’s Natural Gas Alliance), an important coalition of natural changes in policy gas companies, to promote the benefits of natural gas power / replacing coal with natural gas generation as an environmentally progressive and cost-effective alternative to existing and planned coal-fired power generation.

Colorado’s Clean Air, Clean achieved by combined cycle natural Coal retirement announcements increased significantly in 2010 across Jobs Act (House Bill 1365), gas-fired power plants, of which North America in response to stringent environmental regulations. Among signed into law on April 19, 2010, Encana’s Cavalier Power Station the largest were American Electric Power’s December 2010 announcement is designed to retire aging and is an example. of approximately 6,000 megawatts(15) and TransAlta’s November 2010 (16) inefficient high-emitting coal- The Canadian government announcement of up to 800 megawatts of coal-fired power plant fired generation units along the indicated the legislation will likely capacity. Dozens of other announcements were made throughout 2010. Colorado front-range and to be introduced in late 2011 to The U.S. Environmental Protection Agency’s (EPA) regulatory calendar provide primary consideration phase out the 51 coal-burning is rapidly evolving and filled with rules regulating harmful emissions such to natural gas as the power plants currently operating in as NOX , SOX , fine particulates, mercury and greenhouse gases. Also replacement fuel. Canada. Of those, 33 are slated to being addressed are other environmental challenges that face coal-fired Under the framework of reducing reach the end of their economic life electricity generation such as coal combustion byproducts and cooling harmful emissions such as nitrogen cycles by 2025.(14) water structures. The EPA will finalize these regulations over the next few

oxides (NOX ), sulphur oxides (SOX ) years, and the new rules are expected to have a profound impact on the and mercury, Bill 1365 creates a Encana’s Cavalier Power Station electricity industry. framework whereby the Colorado Many existing coal plants are vulnerable to retirement where Public Utilities Commission (PUC) Encana’s Cavalier Power Station demonstrates why clean, affordable, environmental controls are uneconomic. Under many strict environmental will oversee technical and abundant natural gas is the preferred regulatory scenarios, experts such as Credit Suisse predict coal-fired operational implementation for fuel choice for power generation. capacity retirements of up to 100 gigawatts over the next decade, the retirement of approximately Located southeast of Strathmore, accounting for up to 30 percent of the U.S. coal-fired electricity 900 megawatts, or 50 percent, of Alberta, the natural gas-fired combined generating fleet.(17) If these retirements occur and the capacity is replaced coal-fired generation capacity for cycle power plant produces enough with modern natural gas combined cycle power stations, natural gas the state’s utility. The utility’s plan electricity for the Alberta grid to light up consumption could increase by up to 8 Bcf/d. proposes that all 900 megawatts a city of 100,000 people, and it does so retired or repowered capacity be with minimized emissions output. The Cavalier Power Station emits 50 percent cleaner, healthier air converted from coal to natural gas.(13) emissions reductions for power generation less CO2, 70 percent less NOX and

Mirroring the Colorado example, 100 percent less SO2 and mercury than Carbon dioxide 55-65% Canada’s federal Environment a typical coal-fired generating station. Carbon monoxide 90% Sulphur dioxide 99% Ministry announced on June 23, In operation since 2001, the Nitrogen oxide 80-90% 2010 that legislation will be tabled 120 megawatt facility draws roughly Particulate matter 99% to phase out coal-fired power 20 MMcf/d of natural gas from the Mercury 100% next-door Cavalier Gas Plant in order plants over the coming years in Source: Energy Information Administration, Encana estimate. to meet Encana’s electricity needs. The favour of more environmentally gas fuels a combined cycle operation sound alternatives. It’s expected the consisting of two gas turbines and one legislation will reference emissions steam turbine, the main drivers of the standards and efficiencies currently plant’s cycle.

36 Encana Corporation / Annual Report 2010 Our proven record of giving and volunteering is strengthened year-round through our Encana Cares programs, which match employee donations dollar-for-dollar and provide cash grants to organizations where they donate their time. In 2010, the Encana Cares Annual Campaign saw more than 1,200 charities locally and around the world receive $3 million raised in the month of October alone. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com taking responsibility responsible development

streamlined management system / encana’s commitment to responsible

development /42

·· Mid-Continent Business building relationships and Unit earns ISO certification ·· A premier safety culture supporting partners ·· Funding the technologies of the future enhancing skills and improving economies ·· Water management / scholarships and awards /39 ·· International recognition Investing in the communities where Encana operates simply makes good business sense. Encana’s Community Involvement programs are strategically aligned to help boost local economies and enhance the skill sets of the next generation of industry leaders.

·· Scholarships ·· Environmental education provide support for a key priority future workers ·· Nurturing community ·· Tools for success for leaders future industry leaders ·· The spirit of giving ·· Supporting the next generation of Aboriginal business leaders www.encana.com/responsibility/ www.encana.com/news/topics/ cbm-groundwater/

38 Encana Corporation / Annual Report 2010 WATER MANAGEMENT / RESPONSIBLE USE

“We need water. We need energy. It’s not a question of one or the other. It’s a matter of using both responsibly.”

DAVE LYE Vice-President, Corporate EH&S, Security & Corporate Responsibility

Energy is utilized in everything we do. From the moment we get out of bed, turn on the light and H start brewing our morning cup of coffee, energy is being consumed from various forms of renewable and non-renewable resources.

We all need both energy and water. Water is a critical resource and Encana takes responsibility for the water it uses extremely seriously. All forms of energy require water somewhere along their development cycle. In turn, energy is required to treat, transport and heat the water we use in our homes and businesses.

Encana takes a responsible H approach to sourcing, use, transport and disposal of water. This includes seeking opportunities to use non-potable (not fit for animals or humans) water and recycling/reusing water where possible. water management framework / it begins with ENERGY

Natural gas is a key energy source of the future, and North America is well positioned to meet the demand. Natural gas is critical to North America’s lower carbon future.

“Natural gas is the viable energy option for a carbon-constrained world.”

KEVIN BENETEAU Group Lead, Air & Water Canadian Division 30% 65%

Natural gas is clean, producing Natural gas is affordable, in many up to 65 percent less emissions regions up to 30 percent less than coal and 25 percent less expensive as a transportation fuel than oil. than diesel or gasoline.

WHY USE NATURAL GAS AS OUR A shift towards renewable energy Natural gas produces 25 percent Protecting water resources and SOURCE OF ENERGY? is a viable solution to cut carbon less CO2 emissions than oil using them wisely is important A domestic and proven source emissions – however, North and up to 65 percent less CO2 to Encana’s continued success. of energy, natural gas makes up American demand is simply too emissions than coal. The company recognizes about 23 percent of the energy high to be supported entirely by that its water requirements NATURAL GAS DEVELOPMENT mix in Canada and the U.S. With renewable energy sources. DEPENDS UPON WATER and the challenges posed an estimated 100 years supply in Natural gas is affordable, it can So do Encana’s contractors and by its operations require Canada and the U.S., at current support renewable technology, employees who live and work tailored approaches to water production rates, this underutilized and it is a reliable source of in the same communities as its management. Encana reduces resource presents an opportunity energy when the wind doesn’t stakeholders. the use of freshwater through to shift North America’s energy the sourcing of alternatives blow or the sun doesn’t shine. Encana has adapted its water mix and incorporate more natural where appropriate, and seeks to Natural gas is the cleanest- management approach to gas into transportation and recycle and reuse water wherever burning fossil fuel. Composed address geological factors, power generation. possible. Where produced mostly of methane, the hydrology and operational needs. Natural gas is the clear energy water cannot be recycled, it is combustion by-products of This means no single water choice in meeting the increased disposed of responsibly to avoid natural gas are carbon dioxide management approach demand for energy while at the the contamination of freshwater (CO ) and water vapour, the same works in all of the company’s same time reducing our overall 2 resources or land. compounds we exhale. operating areas. carbon footprint.

water management framework / it begins with water management framework / it’s about ENERGY PROTECTION

Natural gas is a key energy source of the future, and North America is well positioned to meet the demand. Natural gas is critical to North America’s lower carbon future. PROTECTING WATER DURING DRILLING great care to design and install effective Encana has proven processes in place well casing systems. to protect groundwater and minimize Surface casing, a section of steel pipe, environmental impact before, during and is cemented in place deeper than Wellhead “Natural gas is the viable energy option after the drilling process. aquifers used for drinking water and Before drilling, Encana may conduct isolates shallow groundwater from predevelopment or baseline groundwater geologic formations that produce natural for a carbon-constrained world.” sampling. In some jurisdictions, such as gas. Numerous tests are run to ensure coalbed methane development in Alberta, the quality and integrity of the casing groundwater testing is currently required and cement. • Aquifers are protected throughout the drilling/fracturing process and Encana by regulation. In other areas the scope Depending on the unique characteristic is bound by various federal, municipal, and extent of predevelopment or baseline KEVIN BENETEAU provincial and state laws which protect of the subsurface, sometimes Encana will Group Lead, Air & Water groundwater. groundwater testing is determined by site- install a second string of casing – called Canadian Division • Drinking water aquifers are located far specific factors including the depth and intermediate casing. above the production zone. quality of local groundwater resources, On a deep horizontal well, Encana drills the • Typical water wells can range from the current and expected use of the 100 to 200 feet below ground surface. well to a total vertical depth ranging from groundwater in the area and the proximity • Cement is used to seal casing to approximately 6,500 feet to 15,000 feet. 30% formation and prevent fluid (gas or water) to groundwater users and potential users. Drilling then continues into the horizontal movement outside the casing. In addition to the natural barriers formed portion of the well that extends up to by thousands of feet of dense rock 65% 9,800 feet into the producing formation. formations, Encana takes numerous measures to ensure the integrity of the Once the horizontal section of the well wellbore and eliminate any pathway from is drilled, a third string of protection – Natural gas is clean, producing Natural gas is affordable, in many the wellbore to drinking water formations. the production casing – is run into the up to 65 percent less emissions regions up to 30 percent less wellbore. Horizontal drilling allows for the Wellbore construction is critical to than coal and 25 percent less expensive as a transportation fuel extraction of larger quantities of natural protecting groundwater. Encana takes than oil. than diesel or gasoline. gas from a single well.

Typical Well Casing Diagram WHY USE NATURAL GAS AS OUR A shift towards renewable energy Natural gas produces 25 percent Protecting water resources and SOURCE OF ENERGY? (Not to Scale) is a viable solution to cut carbon less CO2 emissions than oil using them wisely is important A domestic and proven source emissions – however, North and up to 65 percent less CO2 to Encana’s continued success. Cement – the engineered steel casing system is of energy, natural gas makes up American demand is simply too emissions than coal. The company recognizes cemented externally to prevent any fluids from about 23 percent of the energy high to be supported entirely by that its water requirements migrating from the wellbore to groundwater aquifers. NATURAL GAS DEVELOPMENT mix in Canada and the U.S. With renewable energy sources. DEPENDS UPON WATER and the challenges posed an estimated 100 years supply in Natural gas is affordable, it can So do Encana’s contractors and by its operations require Canada and the U.S., at current tailored approaches to water Conductor Casing – used to maintain integrity support renewable technology, employees who live and work during initial drilling operations. production rates, this underutilized and it is a reliable source of in the same communities as its management. Encana reduces resource presents an opportunity energy when the wind doesn’t stakeholders. the use of freshwater through to shift North America’s energy the sourcing of alternatives Surface Casing – steel pipe protects groundwater/ blow or the sun doesn’t shine. Encana has adapted its water mix and incorporate more natural where appropriate, and seeks to aquifers. Depth is dependent on depth of aquifers management approach to and/or pressure of reservoir, but is generally deeper gas into transportation and Natural gas is the cleanest- recycle and reuse water wherever than regional aquifers; cemented in place with burning fossil fuel. Composed address geological factors, power generation. possible. Where produced cement running between the earth and the pipe. mostly of methane, the hydrology and operational needs. Natural gas is the clear energy water cannot be recycled, it is combustion by-products of This means no single water Intermediate Casing – required in certain wells, choice in meeting the increased disposed of responsibly to avoid depending on reservoir pressure; set to top of the natural gas are carbon dioxide management approach demand for energy while at the the contamination of freshwater producing formation. (CO ) and water vapour, the same works in all of the company’s same time reducing our overall 2 resources or land. compounds we exhale. operating areas. carbon footprint. Production Casing – runs to bottom of well; often cemented all the way to surface.

PROTECTING WATER DURING The extreme pressure exerted by the HYDRAULIC FRACTURING rock above the fracturing zones limits the Most of Encana’s water use happens distance new fractures can travel. Along during hydraulic fracturing operations. with those safeguards, Encana uses Virtually every natural gas well drilled multiple techniques to fully monitor each today requires some type of stimulation to hydraulic fracture treatment it conducts. allow the gas to flow to the wellbore. The Encana ensures the integrity of the goal of hydraulic fracturing is to enhance casing and cement system through field recovery by creating pathways for the inspection and wellbore logging. natural gas trapped in the rock to flow Before the company begins completion up the wellbore to production equipment operations, it pressure tests to ensure at the surface. It is this path of least integrity. Encana then constantly resistance that channels the natural gas monitors pressures during each fracturing into the wellbore. operation. Any flow of fluids into non- This controlled operation pumps a mixture targeted areas would immediately be of fluids (primarily water) and a propping detected by a sudden loss in pressure agent through the wellbore to the target and operations would be halted. formation at a high pressure in multiple Hydraulic fracturing processes are strictly intervals, or stages. The process breaks regulated by various state or provincial up the target formation, much like a government agencies today. Encana stone fracturing a windshield, to create meets and, in many cases exceeds, the pathways that allow the gas to flow from requirements set out by the regulators. the very low permeability reservoir toward Encana continues to build upon its the wellbore. detailed understanding of the chemicals In all Encana operations, rigorous water used in the hydraulic fracturing process management and protection are vital parts to ensure the company is using the of this process. As noted above, proper most responsible hydraulic fracturing wellbore design and a steel casing system fluid formulations and fluid management prevent fluids migrating from the wellbore practices available. and protect local groundwater.

The production zone is far below the surface and thousands of feet below freshwater aquifers. A deep horizontal well can have a vertical depth 1,453 feet of up to 15,000 feet (almost three miles) which equals www.encana.com/news/topics/ up to 10 Empire State hydraulicfracturing/ Buildings in height.

• Fracture water and produced water are kept isolated from groundwater. • Water and sand are required to fracture rock and increase permeability to remove gas. • Encana constantly monitors pressures during each hydraulic fracturing operation. Any flow of fluids into non-targeted areas would immediately be detected by a sudden loss in pressure and operations would PRODUCTION DEPTH / UP TO 15,000 FEET BELOW THE SURFACE be halted. water management framework / examples of our APPROACH

Water is vital to our daily lives. The use of water plays a crucial role in developing natural gas resources. Protecting this natural resource and using it wisely is important to Encana’s continued success.

WATER TREATMENT IN COLORADO The treatment facilities provide hydrocarbon and solids removal Since 2003, Encana has been using an extensive water treatment through gravity separation, chemical and heat addition methods. and distribution system to support drilling and well completion Once treated, the water is stored in secure holding ponds until operations in Colorado’s Piceance Basin. it is reused in completion activities, and the cycle begins again. Produced water is removed from the wells, along with natural gas, Improving the quality of the water waiting to be recycled makes it from thousands of feet below ground surface. less hazardous to wildlife and improves air quality. The separated hydrocarbons are stored in tanks for future sale. Through this Because of its salt content (up to 30 times higher than drinking voluntary hydrocarbon removal and water treatment system, water) this water is unsuitable for domestic or livestock use. Encana’s Encana is able to recycle up to 90 percent of the water produced facilities in four locations are designed to treat about 45,000 barrels during drilling, completion and production operations, greatly of water per day and allow recycling of produced water. reducing the amount of freshwater used, thereby conserving this Produced water from Encana wells and flowback water from well important natural resource. completion operations is transported to these facilities by truck and an extensive network of pipelines. In the region, Encana also continues to build pipeline infrastructure to minimize the need for trucking water and over the course of 2010 the company installed another 10 miles of water pipelines.

SOURCING SALINE WATER IN supplying water for fracturing surface sources. In 2011, the Alberta and trucked to the Kakwa BRITISH COLUMBIA operations and for disposal plant is expected to treat more Field, a round trip of about In 2007, Encana and Apache of spent fracturing fluids or than 12.5 million barrels of water, 90 miles. Corporation began an active produced water. The Debolt meaning only about 10 percent of At a development rate of drilling program in British formation occurs at depths of the water required for hydraulic 40 wells per year, approximately Columbia’s Horn River Basin. approximately 1,600 feet to fracturing operations is sourced 3,000 truckloads of water per Given the low permeability of the 3,600 feet below the surface from surface water sources. year would be required. The Horn River, hydraulic fracturing of and holds saline water unfit for This initiative reduces the need stakeholders near Encana’s the target formation is required most common uses. Tapping for surface water sources and Kakwa operations were to recover natural gas from this this water source required relieves some of the pressure on concerned with the amount of play. Water management was many innovations, including the local watershed. truck traffic that would be added a key concern identified by the investigation of several WATER TRANSPORT IN ALBERTA to their main transportation route Encana and brought forward “sweetening” methods needed By constructing a water storage which is narrow, steep and windy. by stakeholders during public to remove hydrogen sulphide pond on its Kakwa property in By constructing the water storage meetings about developments (H S) and make this water usable 2 west-central Alberta, Encana is pond, Encana fulfills its water use in the basin. Encana sought for industrial purposes. A water optimizing collection of surface requirements within the Kakwa alternatives to freshwater use treatment plant was designed water flow and providing a field, which eliminates the need to supply hydraulic fracturing and built and since it began permanent wetland and water to use municipal water, reduces operations. What followed operation in June 2010, surface body habitat for wildlife use in truck traffic, the associated was the identification of the water use has been significantly the future. The water required emissions from that traffic as well Debolt formation, a deep, reduced. In 2010 alone, a total to develop the Kakwa resource as the costs of purchasing and sub-surface, unutilized aquifer of five million barrels of Debolt was being purchased from the transporting water from containing saline, sour water. water were used in completion municipality of Grande Cache, Grande Cache. Test results indicated that the operations, which in the past Debolt formation is capable of would have been sourced from “We collaborate with third parties to fund important water-related research.”

DOUG HOCK Team Lead, Community & Public Relations USA Division

In Colorado, Encana participates and groundwater levels in the in the Piceance Basin Water Data Kiskatinaw watershed and furthers Repository project. This database, knowledge about the surface and maintained by the US Geological groundwater hydrology Survey, consists of a publicly in this area. accessible website that contains In British Columbia, Encana has water sampling data from locations supported the Horn River and throughout the Piceance Basin Montney Water projects being provided by industry, government run by Geoscience BC. This and citizens. In addition to industry-led, industry-focused, maintaining the database, USGS applied geoscience organization H provides technical papers and encourages minerals and oil and abstracts based upon the data gas exploration investment in gathered. Over the long term British Columbia through the this database will help industry, collection, interpretation and regulators and stakeholders better marketing of publicly available, understand what impacts, if any, oil applied geoscience. and gas development is having on groundwater in the basin. The Montney Water Project is designed to provide a In the Peace Region of British comprehensive inventory of Columbia, the Kiskatinaw River water sources and potential for watershed is the only source deep geological disposal sites of water for the City of Dawson in the Montney Gas Play area of Creek and Village of Pouce Coupe. northeastern B.C., by creating Encana has supported water a comprehensive database of research work by the University surface water, groundwater and H of Northern British Columbia. This deep saline aquifers in the area. research monitors surface water sports & recreation

responsible development / strategic investments enhancing skills and improving education economies / scholarships and awards

Scholarships provide Support for future workers Encana awards approximately 50 new scholarships yearly to high school students pursuing post-secondary education in engineering, geology, geophysics and other industry-related trades. Worth $10,000 over four years, these awards – along with numerous other scholarships for specialized studies at various post-secondary institutions throughout North America – reflect Encana’s commitment to education.

Tools for success for future industry leaders The Encana Integrated Simulation Data Centre, designed to resemble a professional industry data room, was officially opened at the University of Wyoming on October 8, 2010. The facility features software and technology capable of running well simulation 30 to 40 years into the future, predicting lifespan and potential output. The lab enables students to create three-dimensional renderings of oil and gas development, detailing stratum up to 12,000 feet below the surface. This is the second of three labs funded through a Investing in the communities where Encana operates simply makes $2 million donation from Encana made in 2006 and matched by the State good business sense. Encana’s Community Investment programs of Wyoming. “Encana values the long-term commitment to education and are strategically aligned to help boost local economies and enhance the rewarding relationship with the University of Wyoming and supports the skill sets of the next generation of industry leaders. Working programs that serve the needs of students, the university and the oil and directly with stakeholders through open dialogue and collaboration gas industry. I look forward to seeing what these students are able to do increases Encana’s understanding of the unique needs specific in the next 10 years and beyond with the knowledge they gain from this to each of its operating communities and where the company can facility,” says Encana’s Eric Marsh, a University of Wyoming alumnus who make the most impact through its community investment. attended the facility’s ribbon-cutting ceremony.

Encana has five focus areas for community investment: the environment, Supporting the next generation of Aboriginal education, sports and recreation, family and community wellness and business leaders community enhancement. Encana places a strong emphasis on the In 2010, Encana’s Aboriginal Relations team continued to support environment and education focus areas. scholarships and networking opportunities specifically tailored to make In 2010, about 40 percent of Encana’s investment was for education, post-secondary education accessible to Aboriginal youth in British complementing the company’s overall business strategy by helping to Columbia. The Ch’nook Aboriginal Business Education initiative, offered create the highly skilled workforce needed to build a new North American through the University of British Columbia, helps Aboriginal students to energy portfolio. This came in the form of scholarships and programs pursue business education at 25 colleges throughout the province. This delivered through various educational institutions. When coupled with unique opportunity allows for study close to home, helping to bring the Community Involvement initiatives on environmental awareness, this entrepreneurialism of graduates back to their communities. focus on education bolsters the skills and knowledge needed for a cleaner energy future. Annual Report 2010 / Encana Corporation 39 community enhancement

environment

community wellness

Since the 2006 introduction of Ch’nook’s Advanced Management Program – of which Encana is a leading funding sponsor – the initiative has produced 50 alumni from Victoria to Fort Nelson.

“Contributing to the strength and sustainability of the Aboriginal communities where we operate is fundamental This past spring, Encana helped Environmental education a key priority to our business strategy, initiate a pilot project for a Four Colorado high schools and their international sister schools are proactively demonstrated in group of Aboriginal high school helping to build the world’s first global ozone database, thanks to a grant our support of educational students from the northeastern from Encana. The funds sponsored the participation of the eight schools programs and opportunities British Columbia communities in the Global Ozone (GO3) project, supplying each with a state-of-the-art to help train the Aboriginal of Fort St. John, Dawson Creek, ozone monitor and meteorological station. Students use the equipment business leaders of tomorrow. Chetwynd and Fort Nelson. The to collect data on ground-level ozone outside their schools. The results This investment and support students gathered at the Dawson are uploaded as an overlay on a Google Earth map, giving students represents a mature, evolving Creek campus of Northern detailed visuals of ozone concentrations and variances in air quality. relationship between Encana Lights College, where they were In Texas, hands-on environmental help from hundreds of students proved and its communities, one introduced to Ch’nook through truly habitat-forming through an Encana grant of $240,000 to the that fosters constructive first-hand testimonials from some Healthy Habitats program. Administered by the Texas Parks & Wildlife partnerships and win-win of its graduates. One of Ch’nook’s Department and the Texas Center for Service-Learning, the program economic opportunities.” and Encana’s academic partners, sees Kindergarten to Grade 12 students, their teachers and community Northern Lights College, was Mike Forgo members embark on environmental improvement initiatives. With Vice-President, Business Services also the recipient of six $1,000 Encana’s support, more than 3,100 students, teachers, parents and & Stakeholder Relations, Canadian Division Aboriginal Entrance Awards community members across Texas helped restore prairie habitat, prevent offered by Encana for the 2010 fall creek and land erosion, and remove invasive species. semester at the College.

40 Encana Corporation / Annual Report 2010 “Making natural gas the centrepiece of North America’s energy portfolio requires reaching out to students through a number of unique initiatives, both to promote environmental awareness and to educate the next generation about this clean, affordable, abundant resource within North America.”

Don McClure Vice-President, Government & Stakeholder Relations & Legal, USA Division

Educating the next generation about environmental responsibility also means showcasing the virtues of natural gas. Encana’s efforts were recognized last June when the non-profit organization National Energy Education Development (NEED) gave Program of the Year honours to the Colorado school system’s energy education curriculum. Encana was recognized “It was truly incredible to for supporting teacher training with The Banff Centre in Alberta for the creation of an innovative new witness the outpouring of and providing kits to more than Community of Leaders program. The program has been making a generosity during the 2010 180 classrooms – reaching more difference since November 2009, when the first cohort of leaders from annual campaign in October. than 15,000 students. In 2010, across Western Canada began an intensive three-day leadership and More than 1,200 worthwhile Encana provided nearly $450,000 project management training program at The Banff Centre, while a charities locally and around the in funding for NEED programs second cohort embarked on the program this past November. Encana’s world were the beneficiaries of in Colorado, Texas, Wyoming, relationships with its operational communities helped in the selection of $3 million, thanks to employee Louisiana and Pennsylvania. program participants, each of whom identified a community project they giving during the one month advanced by applying The Banff Centre’s training. that the campaign was active. Nurturing community leaders I’m very proud to be part of The spirit of giving Understanding the unique needs an organization that is not only Community investment also supports the individual charitable choices of of each community in which it keenly competitive but where its employees through the Encana Cares program. This program matches operates is central to Encana’s our employees are willing to employee donations, dollar for dollar, up to $25,000 per employee per Community Involvement programs. step forward and help those year. Encana also has an employee volunteer program that provides cash To support leadership and in need.” grants to organizations where employees and their families volunteer their capacity-building at the community Pat MacDonald time. In 2010, more than $5 million was donated to charities thanks to level, Encana entered into a Vice-President, the Encana Cares program and the generosity of Encana employees. Human Resources & Communications $1.5 million arrangement in 2009

Annual Report 2010 / Encana Corporation 41 responsible development / environment, health & safety Mid-Continent A premier safety culture Business Unit earns ISO certification In 2010, Encana achieved the best safety results in company history streamlined Consistent with the Ethos in terms of Total Recordable Injury philosophy of continuous Frequency. This performance management system improvement, the Mid-Continent was attributable to strong safety / Encana’s commitment to Business Unit (MCBU) saw the leadership throughout the culmination of efforts launched responsible developMENT company, a capacity Encana has in the fall of 2009 to enhance the built on through training programs environmental management Encana’s commitment to responsible development means striving such as Safety Essentials for system of its operations. MCBU for continuous improvement in protecting people’s health and safety Leaders. In addition, Encana further Vice-President Paul Sander had a and minimizing the impact of its activities on the environment. These raised its expectations on the goal of achieving ISO 14001: 2004 values underscore the company’s approach to business and guide its safety performance of contractors certification in 2010 in order to: performance. By increasing accountability for performance in these areas, and service providers. both individually and company-wide, Encana reinforces Environment, • establish the environment as a The company’s Drive Safe program Health & Safety (EH&S) as a core value, ultimately safeguarding workers, clear priority and focus for the – initiated to curb vehicle collisions, communities and the environment. A number of significant EH&S business unit the single leading cause of death milestones were achieved in 2010, including the development of an • reduce the overall operational in the oil and gas industry – was enhanced EH&S management system, strong safety performance and footprint by minimizing impacts expanded company-wide in 2010 advances in environmental innovation. and reducing pollution with representation from both the Encana’s EH&S management system is far more than a tool that specifies • continuously improve USA and Canadian Divisions. performance expectations; it’s a cultural blueprint embedded in Encana’s environmental performance A revised safety brand – Safe daily operations and activities. During 2010, Encana realigned its EH&S within every operation 360 – further speaks to Encana’s management system. The streamlined, simplified system, now called ongoing work to achieve an Ethos, integrates operational excellence across all Encana operations The effort included an injury-free workplace. Targeting all to ensure long-term success and sustainability. Integrating Ethos helps environmental assessment employees, contractors, service Encana meet internal and external accountabilities and demonstrate of all activities, selection and providers and stakeholders, Safe sound EH&S performance to all stakeholders. The plan-do-check-act implementation of environmental 360 underscores the importance process integral to Ethos drives the continuous improvement of Encana’s objectives, measurement of of being aware in all directions – be EH&S processes and performance. outcomes and a significant amount of training and awareness it potential hazards on a worksite “Ethos provides business units with a simple and effective system to activities. The MCBU was audited or acknowledgement of safety guide their EH&S performance as well as a means to measure and report in October and November of 2010, considerations in a project design. on that performance through audit and self-assessment against the and in December 2010 received system. It’s a systematic, common sense approach that gives predictable formal ISO certification. outcomes and empowers staff to achieve continuous improvement,” says Byron Gale, Vice-President, EH&S, USA Division.

42 Encana Corporation / Annual Report 2010 program that provides financial Walking the talk on water consecutive year Encana made the “In 2009, we achieved our support to external companies management requires infrastructure World index, which recognizes a best-ever total recordable and technologies that endeavour investment. The Debolt water select list of 318 companies in injury frequency rate as a to improve the environmental treatment plant in northeastern 57 industries and 27 countries. company, a benchmark we performance of producing or British Columbia is a prime The list is based on analyses of bettered statistically in 2010. consuming energy. example. Commissioned in 2010, corporate economic, environmental Striving for a premier safety the plant provided completions and social criteria, including the Such funding enhances culture means never being operations in the Horn River play evaluation of climate change and complements Encana’s satisfied. We constantly strive with a consistent supply of water. strategies, energy consumption, commitment to environmental for improvement and that’s Six months after the plant was human resources development, stewardship and its focus on the message of Safe 360 – operational, 75 to 80 percent of knowledge management, minimizing detrimental impacts being committed to safety at water used in hydraulic fracturing stakeholder relations and on air and water quality. Through home, on the road and in the operations was from the Debolt corporate governance. Encana identification of environmental workplace.” formation – resulting in significant was the only North American oil risks and of innovative and viable surface water preservation. and gas company, and one of Brent Harrison environmental technologies, Vice-President, EH&S, Canadian Division 12 worldwide, named to the Encana strives for continuous International Oil and Gas Producers’ sector improvement in terms of minimizing recognition of the 2010 DJSI World list. Funding the technologies operational impacts on land, Encana’s commitment to of the future The company also earned the water and air. responsible development saw the In 2010, Encana expanded the distinction as a “sustainability company named in 2010 to the mandate of its energy efficiency Water management leader” in the oil and gas industry. Dow Jones Sustainability World program to include internal projects Encana’s sound water Index (DJSI World). It was the fifth that create measurable reductions management practices are in energy, air emissions, and land constantly evaluated for or water use within company improvement. To help preserve this “This ongoing recognition as a world leader in sustainability operations. Under the renamed valuable resource, Encana seeks shows that our initiatives around responsible development – Environmental Efficiency Fund, opportunities to recycle water including those pertaining to EH&S and our stakeholders – $6 million was committed to and use unutilized water sources are well-balanced with our economic achievements. It reflects 12 projects in 2010, with an wherever practical. Water advisors the daily efforts our staff undertakes to ensure we conduct our estimated 55,000 tonnes of carbon embedded in both operating business in the most responsible and sustainable fashion possible.” dioxide equivalent (C02e) avoidance. divisions provide surface and Three external projects were funded groundwater expertise in Canada Dave Lye in 2010 through the Environmental and the United States. Vice-President, Corporate EH&S, Security & Corporate Responsibility Innovation Fund – a sister

Annual Report 2010 / Encana Corporation 43 To improve our safety standards we recently installed digital devices in some of our company vehicles to positively affect driving habits. The new devices monitor each driver’s behaviour, including speeding, hard braking and hard acceleration. This ensures everyone gets to their destinations safely. Take a closer look. We are Encana.

Learn more about natural gas and Encana at www.encana.com