Delivering on Our Potential
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EnCana Corporation 2005 Annual Report Annual Report Delivering On 2005 Our Potential EnCana Corporation 1800, 855 – 2nd Street S.W. P.O. Box 2850 Calgary, Alberta, Canada T2P 2S5 Phone: 403-645-2000 www.encana.com Printed in Canada. CEO’s Message 2 Operations 9 Key Resource Plays 15 Corporate Responsibility and Governance 23 Management’s Discussion and Analysis 28 Consolidated Financial Statements 63 Supplemental Information 108 EnCana Total Return versus Major Indices Cover photo Coalbed methane well site, 400 Rockyford, Alberta 350 Photo this page Top-drive rig, East Texas 300 250 200 150 100 50 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 02 03 03 03 03 04 04 04 04 05 05 05 05 ECA NYSE S&P/TSX Composite ECA TSX S&P 500 Total Shareholder Return (December 31, 2002 = 100) 2006 Sales Guidance Advisory Certain information regarding the Company and its subsidiaries set forth in this document, Total North American Natural Gas Sales Total North American Oil and NGLs Sales including management’s assessment of the Company’s future plans and operations, may constitute “forward- looking statements” or forward-looking information In 2006, North Growing sales under applicable securities laws and necessarily involve 166 risks and uncertainties associated with future events. As American natural from oilsands 166 158 3,490 a consequence, actual results may differ materially from 156 gas sales are 3,277 are expected to those anticipated in the forward-looking statements or 2,968 information. See page 60 for a more detailed advisory. forecast to grow offset declining 2,553 For convenience, references in this Annual Report to by 8%. conventional oil “EnCana”,the “Company”,the “company”,“we”,“us”, production. “our” and similar references may, where applicable, refer only to or include any relevant direct and indirect subsidiary corporations and partnerships (each a “Subsidiary” or if more than one, “Subsidiaries”) and the assets, activities and initiatives thereof. References to financial results of operations refer to the consolidated financial results of EnCana Corporation 03 04 05 06F and its Subsidiaries, taken as a whole, except where (MMcf/d) 03 04 05 06F (Mbbls/d) otherwise noted or the context otherwise implies. 06F Midpoint of guidance 06F Midpoint of guidance This Annual Report contains references to measures commonly referred to as non-GAAP measures. Additional disclosure relating to these measures is set forth in Management’s Discussion and Analysis on pages 32, 34 and 50 and the advisory found on pages 60-62 of this Annual Report. designed and produced by smith + associates Please recycle. The Unconventional Fairway Financial Highlights US$ millions, except per share amounts 2005 2004 % Change Revenues, net of royalties 14,266 10,259 39 Strong Total Sales Growth EnCana has assembled a vast Cash Flow (1) 7,426 4,980 49 Per Share – diluted 8.35 5.32 57 13% – compound land position across North America’s Net Earnings 3,426 3,513 -2 annual growth rate 1.9 1.8 Per Share – diluted 3.85 3.75 3 per share 1.5 Operating Earnings (2) 3,241 1,976 64 unconventional fairway, home to the Per Share – diluted 3.64 2.11 73 Net Capital Investment 4,097 4,206 company’s 10 key resource plays. Shares Purchased (millions of shares) 55.2 40.0 Average Price 34.85 25.12 (Mcfe/share) 03 04 05 Net Debt-to-Capitalization (%) 33 33 North America’s interior, the north-south expanse of the plains 1 Net Debt-to-EBITDA (times) (3) 1.1 1.4 and grasslands running from the Gulf of Mexico to the Arctic, (4) 0.80 Net Debt-to-Proved Developed Reserves ($/Mcfe) 0.79 was not always a vast dry prairie or high plateau. Illustrated by 10 Return on Capital Employed (%) 17 20 the light green in the map at the right, a massive seaway once 2 Return on Common Equity (%) 23 27 9 Consistent Reserves Growth bisected the continent. Over a 25-million-year period during the Cretaceous Period and ending about 65 million years ago, 3 rivers and rainwater washed sediments downstream from the Operating Highlights 19%– compound 4 21.3 western highlands – today’s Rocky Mountains – to settle in a annual growth rate series of enormous sedimentary basins. With time and climate After Royalties 2005 2004 % Change per share 17.0 14.9 changes, shorelines migrated across this shallow sea, rivers Continuing Operations – North America cut new courses and enormous tectonic events deposited rocks, Natural Gas Sales (MMcf/d) silt and sand rich with the plants, sea life and vegetation that Canada 2,132 2,099 2 formed a storehouse of deeply buried organic material. Layer 5 U.S.A. 1,095 869 26 upon layer of overburden generated massive pressures. In Total Natural Gas Sales (MMcf/d) 3,227 2,968 9 combination with geothermal heat extending over millions 6 Oil and NGLs Sales (bbls/d) 156,000 166,417 -6 (Mcfe/share) 03 04 05 of years, these forces created hydrocarbons, the natural gas Total Sales Continuing Operations (MMcfe/d) 4,163 3,966 5 and oil that now fuel the Earth. Over more than three decades of operations, EnCana and its predecessor companies have Discontinued Operations assembled a vast land position across this unconventional – 1 Greater Sierra U.K. Total Sales (MMcfe/d) 126 fairway, home to the company’s 10 key resource plays. 7 Ecuador Oil Sales (bbls/d) 71,065 77,993 Record Cash Flow 2 Cutbank Ridge From northeast British Columbia to east Texas, EnCana 8 Total Sales Discontinued Operations (MMcfe/d) 426 594 is profitably tapping and unlocking huge deposits of natural 3 Coalbed Methane Total Sales (MMcfe/d) 4,589 4,560 1 34%– compound gas and bitumen on these resource play lands through 4 Shallow Gas annual growth rate 8.35 the application of innovative technology, manufacturing 5 Jonah per share methodology and unconventional thinking. Net Reserves Additions (Bcfe) (5) 4,542 3,163 6 Piceance Production Replacement (%) (5) 271 189 5.32 4.65 Reserve Replacement Cost ($/Mcfe) (5) 0.91 1.40 7 Fort Worth Finding & Development Cost ($/Mcfe) (5) 1.29 1.44 8 East Texas Reserve Life Index (years) (5) 11.0 9.3 9 Foster Creek Year-end Reserves (Bcfe) (5) 18,507 15,643 18 10 Pelican Lake Unbooked Resource Potential (Bcfe) (6) 24,400 ($/share) 03 04 05 (1) As defined on page 32. Natural Gas (2) As defined on page 34. Oil (3) As defined on page 50. (4) 2004 before bitumen revision as discussed on page 109. (5) Proved reserves only. 2004 before bitumen revision as discussed on page 109. (6) As defined on page 61. 2004 number was released April 2005. Why invest in EnCana? EnCana is a leading North American resource play company focused on natural gas and in-situ oilsands. The CEO’s Message company’s primary goal is to optimize long-term growth of net asset value EnCana is an industry per share through disciplined capital leader in the development investment in the development of its vast unconventional resources. of unconventional reservoirs. Four fundamental characteristics illustrate why EnCana has confidence in the strength of its resource play potential: • An extensive drilling inventory 37,000 well locations • Strong production and reserves growth Forecasting average annual 10% per share sales growth • Robust project returns Targeting greater than 15% risk-adjusted internal rate of return • Significant value upside In-situ oilsands development High impact exploration and portfolio management EnCana Corporation 2005 Annual Report 1 2 EnCana Corporation 2005 Annual Report Tank farm facility, Fort Worth, Texas Our Strategy Disciplined investment in developing our extensive inventory of resource plays to deliver predictable and profitable sales and reserves growth and increase the net asset value of every EnCana share. Randy Eresman President & Chief Executive Officer Delivering On Our Potential A Year of Contrasting Extremes It is a privilege to write my inaugural letter to shareholders The year 2005 was filled with contrasting extremes – shortly after assuming my new role as President & Chief tremendous prices and one of the toughest operating Executive Officer and in the wake of such a dynamic and vibrant environments ever. Robust world economic growth drove year for our industry and EnCana. The theme of our 2005 natural gas and oil prices to record levels. Demand for oilfield annual report is Delivering On Our Potential, and EnCana’s equipment and services skyrocketed, stoking industry inflation resource potential is enormous – proved reserves of 11.8 trillion by as much as 30 percent. Devastating North American weather cubic feet of natural gas and 1.1 billion barrels of oil, plus – a pair of massive hurricanes and record rainfall in Western unbooked resource potential estimated at 24 trillion cubic feet Canada – took out Gulf of Mexico production and halted of gas equivalent. It is upon this resource foundation that we Canadian drilling crews in their tracks, further choking off plan to grow annual sales at an average of 10 percent per share supply and again driving up prices for gas, oil, compressors, for years ahead. In this report, we discuss our achievements, steel, drill pipe, rigs, workers and construction. The prices we explain EnCana’s potential, and describe how we plan to deliver benefited from also fuelled inflation in our own industry. industry-leading performance and execution excellence Everything energy cost more. in our natural gas and in-situ oilsands businesses. As always, our overarching goal is clear – building the net asset value of every EnCana share. EnCana Corporation 2005 Annual Report 3 Sustained Performance During Turbulent Times Enormous Oilsands Potential Through all the operational challenges, the strength and Our vast oilsands are at an early stage of development and stability of our resource play strategy endured as EnCana we believe they hold enormous value that has yet to be realized.