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Attention Business Editors
EnCana plans to split along distinct business lines to create two Calgary-headquartered energy companies
Restructuring to create two senior energy companies focused on
unconventional resources: An integrated oil company and a pure-play
natural gas company
CALGARY, May 11 /CNW/ - The Board of Directors of EnCana Corporation
(TSX, NYSE: ECA) has unanimously approved a proposal to split EnCana into two
highly focused energy companies - one a natural gas company with an
outstanding portfolio of early life, North American, natural gas resource
plays and the other a fully integrated oil company with industry-leading
in-situ oilsands properties and top-performing refineries, as well as an
underlying foundation of reliable oil and gas resource plays. This transaction
is designed to enhance long-term value for EnCana shareholders by creating two
highly sustainable, independent entities, each with an ability to pursue and
achieve greater success by employing operational strategies best suited to its
unique assets and business plans.
The proposed corporate reorganization would be implemented through a
court-approved Plan of Arrangement. This transaction will create a
publicly-traded integrated oil company with oilsands as the growth driver.
This company, which has a working name of IntegratedOilCo (IOCo), will focus
on the development of EnCana's Canadian oilsands assets and refinery interests
in the United States, underpinned by a well-established natural gas and oil
production base in Alberta and Saskatchewan. IOCo assets, which encompass
EnCana's Integrated Oil and Canadian Plains divisions, represent about
one-third of EnCana's current production and proved reserves. EnCana's other
major operating divisions, Canadian Foothills and USA, will form a pure-play
natural gas company, aimed at growing existing high-potential resource plays
in Canada and the United States. With a working name of GasCo, it will
represent about two-thirds of EnCana's current production and proved reserves.
It is expected that GasCo will retain the name EnCana Corporation. The
permanent name of IOCo will be determined before the transaction closes.
EnCana shareholders to receive one share in each of the two companies
Under the proposed transaction, which is expected to be completed in
early 2009, EnCana common shareholders will receive one share in each of GasCo
and IOCo in exchange for each EnCana share held. The transaction is generally
expected to be tax free to shareholders. EnCana intends that the initial
combined dividends of the two companies will be equivalent to EnCana's current
dividend of US$1.60 per share annually. Dividends will be at the discretion of
the respective boards of directors of each company. EnCana expects to continue
recommending to its Board of Directors that the company pay a 40 cent per
share quarterly dividend until the transaction is complete.
A tradition of shareholder value creation to continue in distinct energy
pursuits
"Since its creation in 2002, EnCana has evolved into a leading producer
of unconventional resources, achieving excellent financial and operating
performance. Over the past five years, total shareholder return has been
exceptional, providing a compound annual return of 24 percent on the TSX and
35 percent on the NYSE," said David O'Brien, EnCana Chairman. "Going forward,
one outstanding energy company is dividing into two exciting energy
enterprises, each highly specialized, each with the objective of being a
leader in its specific business and both resolutely focused on continuing a
tradition of sustainable shareholder value creation."
EnCana running strong, very well positioned for value creation
"We are initiating this process from a position of unprecedented
strength. In the past few years, we have transformed EnCana into a leading
producer of North American unconventional natural gas and integrated in-situ
oil - a company with a unique, low-risk, sustainable growth profile. We have
assembled an outstanding portfolio of unconventional natural gas, oil and
in-situ oilsands assets. Our strong operational and financial performance has
shown that our resource play model is working extremely well and we are
ideally positioned for the future," said Randy Eresman, EnCana's President &
Chief Executive Officer.
"Our natural gas business is very strong. We have delivered consistent
production increases and cost improvements and our existing and emerging plays
hold great potential. We have become North America's largest natural gas
producer in one of the world's lowest-risk regions and largest energy markets.
Our integrated oilsands business is into its second year of our 50-50 joint
venture with ConocoPhillips. This successful partnership strategically and
financially links premier in-situ oilsands assets with industry-leading
refinery assets, creating one of the industry's lowest cost integrated
oilsands developments," Eresman said.
Division into distinct businesses will focus expertise to enhance value
and capture opportunities
"It is from this strong base that we take this next step along the path
of enhancing value for our shareholders. We strongly believe that companies
need to have disciplined focus on their expertise and core strengths in order
to achieve full value from their assets, to capture opportunities and to
effectively respond to changing markets. With the creation of these two
companies, each management team will focus more directly on the critical
success factors in its respective businesses. They will be better equipped to
direct their strategies and operations towards building value by tailoring
practices and execution to fit the unique nature of their assets. As well,
with greater transparency and focus, the investment community will be able to
more easily follow and more accurately assess and value these companies,"
Eresman said.
Updated EnCana guidance and supplemental transaction information posted
on website
Concurrent with this announcement, EnCana has updated its estimates of
2008 pre-transaction cash flow to a range of between $9.6 billion and $10.0
billion to primarily reflect increases in forecasted commodity prices. Updated
2008 EnCana guidance, pro forma guidance for GasCo and IOCo and supplemental
information about the proposed transaction will be posted on the company's
website www.encana.com.
Benefits of the transaction
This transaction is aimed at continuing to build on current success by
offering a number of significant benefits which are expected to include:
<<
- Two pure-play onshore North American energy companies
- a premier natural gas company that is almost exclusively focused
on natural gas exploration and development of resource plays
- a premier integrated oilsands business anchored by stable
production and cash flow from well-established oil and gas
resource plays
- Mandate to pursue tailored strategies
- provides each company with a clear mandate to pursue short and
long-term strategies best suited to its unique assets and
business plans
- Expanded growth opportunities
- improves and expands the strategic positioning and growth
opportunities of each company
- Two high-potential investments
- existing shareholders can retain ownership in both companies
- Experienced leadership
- each company to be led by experienced directors and executives
who have demonstrated success building EnCana
- Sharpened focus, greater value transparency
- greater clarity on specific strategies employed and increased
financial transparency
- Better valuation
- investors and analysts will be able to more accurately compare
and evaluate the stand-alone companies against peers,
competitors, benchmarks and performance criteria
>>
IOCo to focus on growing integrated oilsands business
Upon completion of this transaction, it is anticipated that IOCo will be
positioned to deliver sustained growth from industry-leading oilsands
properties that contain resources sufficient to fuel significant oilsands
growth for decades ahead. IOCo will also capture the benefits of the full
value chain through EnCana's integration of two producing upstream Alberta
oilsands assets - Foster Creek and Christina Lake, and two top-performing
refineries at Wood River in Illinois and Borger in Texas. Upstream,
construction is underway to increase production capacity more than 200 percent
to an estimated average of about 110,000 net barrels of oil per day (bbls/d)
by 2012. Current production is about 30,000 net bbls/d.
"I am excited to be part of this new high-growth integrated oil company
and working with the people who will continue their history of ingenuity and
success as we build even greater shareholder value from the company's strong
asset base. From the moment of its creation, we expect this company will be an
industry leader in sustainable growth - reliably pursuing economic,
environmental and socially responsive behaviour," said Brian Ferguson, IOCo's
designated President and Chief Executive Officer and currently EnCana's Chief
Financial Officer. "IOCo will be a company that its 2,000 employees can be
proud of."
"We estimate that IOCo's integrated oilsands assets are capable of
achieving double-digit growth between now and 2016. We believe that its
reservoirs are among the best in the oilsands business. Our oilsands teams
have more than a decade of innovative technical and development experience in
achieving industry-leading production and capital efficiencies. They have set
the pace in reducing environmental impact and have consistently increased the
energy efficiencies of daily production. In Saskatchewan, the Weyburn oil
field is home to the world's largest carbon sequestration project. It has
garnered global attention as a potential way to help reduce greenhouse gas
emissions, and we see a natural opportunity for transferring its technology to
our oilsands projects. In addition, our well-established gas and oil resource
plays, where we have identified an inventory of 9,500 future well locations,
are positioned to deliver highly predictable and reliable production. These
are ideal characteristics for building a financially strong, sustainable,
integrated oil company that builds net asset value per share," Ferguson said.
Large IOCo resource base
In October, 2006 EnCana announced that it had entered into an agreement
with ConocoPhillips to create an integrated oil business. At that time,
independently determined best estimates of recoverable bitumen for Foster
Creek and Christina Lake were disclosed at more than 6.5 billion barrels and
more than 2.5 billion barrels for Borealis, which is not part of the joint
venture with ConocoPhillips. These estimates have not been updated and are not
current. As a result of today's announcement, the greater focus on the in-situ
oilsands assets of IOCo and given that IOCo will have all of its upstream
operations in Western Canada, it is anticipated that EnCana will be reviewing
the need to report the in-situ resources and other assets to be held by IOCo
under the standards required by Canadian securities regulatory authorities.
Planning for a decade of strong growth ahead
Over the next decade, IOCo's target as part of the integrated oilsands
joint venture with ConocoPhillips is to increase gross upstream bitumen
production from Foster Creek and Christina Lake to approximately 400,000
bbls/d (200,000 bbls/d net to IOCo) and downstream refining capacity to about
510,000 bbls/d (255,000 bbls/d net to IOCo). IOCo's well-established shallow
gas resource plays in Alberta are capable of providing strong cash flow to
help grow production from its high-quality oilsands resources. Natural gas is
the source fuel for oilsands steam generation and IOCo's gas production also
serves as a natural hedge against volatile gas prices. IOCo's assets will also
include successful enhanced oil developments at Pelican Lake in northern
Alberta. Future in-situ potential opportunities include SAGD development of
the Borealis oilsands assets. During the first quarter of 2008, IOCo's
designated assets were producing about 100,000 bbls/d of oil and natural gas
liquids (NGLs) and about 925 million cubic feet per day (MMcf/d) of natural
gas, while the refinery assets were processing about 225,000 bbls of net oil
per day.
"Complementing these upstream resources are two established refineries in
Illinois and Texas, operated by Conoco-Phillips, which has a wealth of
refining expertise. These industry-leading refineries allow us to capture the
full value chain, from the oil well to transportation fuel markets. The Borger
Refinery recently completed an expansion to process growing volumes of
Canadian heavy oil and the coker and refinery expansion project at the Wood
River Refinery is well defined and expected to proceed shortly. We expect that
the future expansions of the upstream and downstream segments of our
integrated oil business will be achieved at about one-half of the capital cost
of similar and recently announced projects in Alberta," Ferguson said.
"One of our fundamental objectives is to continue to build net asset
value per share while also returning capital to shareholders. The company will
target an annual production growth rate of 4 to 6 percent and is expected to
deliver sufficient free cash flow to pay an attractive dividend and conduct a
share buyback program," Ferguson said. Dividends will be at the discretion of
the IOCo board of directors.
GasCo to develop natural gas resource plays
Under the proposed transaction, GasCo will be a pure-play, natural gas
company focused on growing its gas resource plays across North America. GasCo
is expected to be the second largest gas producer in North America. The
unconventional gas producer is expected to deliver long-term, low-risk growth
from a strong portfolio of current and emerging resource plays in key basins
in Alberta, British Columbia, Wyoming, Colorado, Texas, Louisiana and offshore
Nova Scotia. GasCo will hold the company's portfolio of prolific gas resource
plays: CBM (coalbed methane) and Bighorn in Alberta, Cutbank Ridge and Greater
Sierra in British Columbia, Jonah in Wyoming, Piceance in Colorado and Fort
Worth and East Texas in Texas. GasCo is well positioned in most of the lowest
supply cost basins in North America and continues to demonstrate one the
lowest cost structures in the industry. In addition to these established
plays, operating teams recently achieved some promising exploration results in
a number of North American shale plays, such as Horn River in British Columbia
and the Haynesville shale in Louisiana, plus the Mannville CBM play in central
Alberta, and these plays have the potential to add significant depth to the
company's strong portfolio of natural gas assets. GasCo will also hold
EnCana's remaining international interests and midstream assets. It will
target an annual production growth rate of 7 to 9 percent, and is expected to
deliver sufficient free cash flow to pay an attractive dividend and conduct an
active share buyback program. Dividends will be at the discretion of the GasCo
board of directors.
"We will continue to pursue increasing shareholder value through the
specialized pursuit of sustainable production growth from our strong portfolio
of unconventional natural gas assets. We will remain focused on capital
discipline generating strong free cash flow to be available to return to
shareholders through share purchases and dividends as we build a company that
acts in a conscientious, reliable manner in producing natural gas, the
cleanest burning of fossil fuels, for people's homes and workplaces," said
Eresman, GasCo's designated President and Chief Executive Officer.
"GasCo will continue to build upon the engineering innovation and
intellectual enthusiasm that our people have demonstrated by establishing our
strong foothold in North American unconventional natural gas - built largely
over the past five years. In the years ahead, our resource play development
leaders will have many new opportunities to demonstrate their expertise in
growing our large resource base and capturing the potential of our new and
emerging plays," Eresman said.
Two large energy firms to emerge
Both of these companies will be large, Calgary-headquartered enterprises
with strong, visible growth profiles, competitive cost structures and solid
financial positions. Based on expected market values, both companies would be
among Canada's 20 largest corporations and among the top six energy companies
in Canada.
"Both companies intend to continue the tradition that created EnCana's
success, applying the principles of strong business leadership that are
focused on the objectives of enhancing the value of every share, disciplined
capital investment and cost management. They will operate in a principled and
ethical manner, pursue energy efficiency in all operations, strive to be
employers of choice and actively participate in helping to build the
communities where they operate. These companies will strive to maintain the
same corporate responsibility principles that EnCana has been proud of,"
Eresman said.
Experienced leadership running each company from day one
From the first day of operations, both GasCo and IOCo will benefit from
strong leadership - experienced energy industry directors and executives who
have demonstrated success building EnCana. David O'Brien is designated
Chairman of the Board of Directors of GasCo and Randy Eresman is a designated
director of IOCo.
<<
The designated executives of the two companies are:
IOCo:
- Brian Ferguson, EnCana's Chief Financial Officer, is designated
President and Chief Executive Officer
- Ivor Ruste, EnCana's Chief Risk Officer, is designated Chief
Financial Officer
- John Brannan, President, Integrated Oil, will continue to lead this
division
- Don Swystun, President, Canadian Plains, will continue to lead this
division
GasCo:
- Randy Eresman is designated President & Chief Executive Officer
- Sherri Brillon, EnCana's Executive Vice-President, Strategic
Planning & Portfolio Management, is designated Chief Financial
Officer
- Mike Graham, President, Canadian Foothills, will continue to lead
this division
- Jeff Wojahn, President, USA, will continue to lead this division
>>
EnCana's other corporate officers, Sheila McIntosh, Executive
Vice-President, Corporate Communications; Bill Oliver, Executive
Vice-President Corporate Development and President, Midstream & Marketing;
Gerry Protti, Executive Vice-President, Corporate Relations and President,
Offshore & International Division and Hayward Walls, Executive Vice-President,
Corporate Services, will also have executive roles in one of the two
companies.
IMPORTANT NOTE: EnCana reports in U.S. dollars unless otherwise noted and
follows U.S. protocols, which report production and reserves on an
after-royalties basis. The company's financial statements are prepared in
accordance with Canadian generally accepted accounting principles (GAAP).
<<
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Pro forma IOCo and GasCo information(1)
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IOCo GasCo
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North American production
(after royalties, 2008F)
Natural gas (MMcf/d) 860 2,920
Oil and NGLs (Mbbls/d) 102 30
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Total (MMcfe/d) 1,470 3,100
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Total (MBOE/d) 245 515
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Proved reserves (year-end 2007)
Natural gas (Bcf) 2,020 11,280
Oil and NGLs (MMbbls) 827 100
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Total (Bcfe) 6,980 11,880
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Total (MMBOE) 1,165 1,980
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Land (year-end 2007, millions net acres)
Developed 4.5 5.1
Undeveloped 3.9 11.3
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Total(2) 8.4 16.4
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Operating cash flow(3)
(2008F, US$ billions) 4.2 - 4.6 7.9 - 8.2
Upstream operating costs
(2008F, US$/Mcfe) 1.45 0.90
Number of employees (estimated) approx. 2,000 approx. 3,500
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Divisions Integrated Oil Canadian Foothills
Canadian Plains USA
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Resource Plays Foster Creek CBM
Christina Lake Bighorn
Borealis Greater Sierra
Shallow Gas Cutbank Ridge
Weyburn Jonah
Pelican Lake Piceance
East Texas
Fort Worth
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Refineries - Wood River - 153,000
net capacity (bbls/d) Borger - 73,000
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Refining total -
net capacity (bbls/d) 226,000
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(1) This table is based on an update of EnCana's guidance, which has been
posted on the company's website www.encana.com, and has been
apportioned to provide indicative figures for GasCo and IOCo. Final
asset allocations for GasCo and IOCo may affect the above. Relevant
assumptions and qualifications are contained in the note regarding
Non-GAAP measures and the legal advisories starting on page 9 of this
news release.
(2) Includes land onshore North America only
(3) Operating cash flow is defined as revenue, net of royalties less
production and mineral taxes, transportation and selling costs,
operating expenses and purchased product.
>>
Financial Strategy
At inception, IOCo and GasCo intend to initially pursue the same
financial strategy and use the same credit metrics that EnCana has employed. A
target net debt-to-capitalization ratio of between 30 and 40 percent and a net
debt to adjusted EBITDA of 1.0 to 2.0 times has been established for each
entity. Management intends to capitalize each entity with a financing strategy
that aligns with its business model and growth plans. Both companies will be
targeting to maintain strong investment grade credit ratings. EnCana has been
in discussions with the credit ratings agencies prior to this announcement.
At March 31, 2008 EnCana had long-term debt outstanding of about
$10.1 billion, including approximately $8.2 billion in bonds and medium term
notes. EnCana is working with its financial advisors to examine alternatives
to provide an orderly and cost effective transition of debt between the
entities. EnCana has suspended purchases under its Normal Course Issuer Bid
program and intends to use free cash flow to reduce net debt levels prior to
year-end. EnCana expects to have a net debt-to-capitalization ratio at the end
of 2008 of approximately 30 percent. EnCana intends that the initial combined
dividends of the two companies will be equivalent to EnCana's current dividend
of US$1.60 per share annually. Dividends will be at the discretion of the
respective boards of directors of each company.
IOCo intends to arrange committed bank credit facilities to facilitate
the closing of the transaction and assist with the orderly transition of debt
between entities. These facilities are expected to be partially repaid from
the subsequent issuance of long-term debt by IOCo.
Dividing the company along operational lines means business as usual
This transaction is expected to have minimal impact on EnCana's
employees, operations, suppliers, business partners and stakeholders. EnCana
completed an internal reorganization into operating divisions in early 2007 to
increase focus on specific aspects of each core asset, with many corporate
functions embedded directly into each division. A high priority will be to
place employees in EnCana's corporate groups in appropriate positions in the
two companies. Under the proposed transaction, EnCana's Integrated Oil
Division and Canadian Plains Division will become IOCo. GasCo will encompass
the Canadian Foothills Division, the USA Division, the Offshore &
International Division and the midstream assets. Each company will maintain
its own energy marketing operations. During the reorganization, EnCana will
conduct its business as usual honouring all business relationships,
commitments and obligations, including its obligations with respect to The BOW
office project, currently under construction, as each company expects to
occupy a portion of the building. EnCana will provide further information for
stakeholders as future developments warrant.
"We recognize change may cause uncertainty for employees and contractors,
as well as our business partners, suppliers and our stakeholders in the
communities where we operate. Through this transition period, we will work
diligently to make these changes as seamless as possible. We are not
contemplating any layoffs. In fact, with the strong growth potential of these
two companies, we expect continued employment growth ahead in both companies.
In past periods of organizational change, our staff has displayed strength and
dedication while creating thriving new organizations and we are confident
GasCo and IOCo will continue that practice," Eresman said.
Reorganization to be completed through Plan of Arrangement
The proposed reorganization will be carried out pursuant to a
court-approved Plan of Arrangement under the Canada Business Corporations Act
and is subject to receipt of favourable rulings from Canadian and U.S. tax
authorities, shareholder approval, approval of the Court of Queen's Bench of
Alberta, receipt of appropriate regulatory approvals and satisfaction of other
customary closing conditions. The restructuring of the Canadian businesses
will cause an acceleration of future taxes that will be recognized in 2008.
The impact on 2008 cash taxes is expected to be an increase of approximately
$1 billion. This is offset by a U.S. tax benefit which will accrue to GasCo in
2010 and subsequent years as a result of returning to independent producer
status. The expected net present value of the tax cost of the restructuring is
approximately $250 million.
A proxy circular setting out the details of the Plan of Arrangement is
expected to be mailed to EnCana shareholders in the fall of 2008. EnCana
expects, subject to the satisfaction of conditions and receipt of approvals,
to complete the transaction in early 2009.
Costs of the transaction
Expenses of the transaction are expected to be less than $300 million
after-tax, in the aggregate, and will be recorded as incurred and disclosed in
each quarter for the appropriate company.
Financial and Legal Advisors
Merrill Lynch and RBC Capital Markets are acting as financial advisors to
EnCana. CIBC World Markets is acting as financial advisor to the Board of
Directors of EnCana, and has provided a verbal opinion that the consideration
to be received pursuant to the transaction is fair, from a financial point of
view, to EnCana common shareholders. Scotia Waterous Inc. and Lehman Brothers
Inc. have been retained as strategic advisors by EnCana. Bennett Jones LLP,
Felesky Flynn LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP and Dewey &
LeBoeuf LLP are acting as legal advisors to EnCana. McCarthy Tétrault is
acting as legal advisor to the Board of Directors of EnCana.
<<
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NEWS MEDIA BRIEFING TODAY
1 p.m. Mountain Time (3:00 p.m. Eastern Time)
EnCana Corporation will host a news media briefing today, Sunday May 11,
2008, to discuss today's announcement. The media briefing is at 1 p.m. MT
at Calgary's Telus Convention Centre, in the McLeod E1 room on the lower
level of the centre's south building, 120-9th Avenue S.E., Calgary,
Alberta
News media representatives can also participate by dialing
(800) 733-7571 (toll-free in North America) or (416) 644-3414
approximately 10 minutes prior to the start of the briefing. An archived
recording of the briefing will be available from approximately 3:30 p.m.
MT on May 11, 2008 until midnight May 18, 2008 by dialling (877) 289-8525
or (416) 640-1917 and entering access code 21271661.
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CONFERENCE CALL TODAY
2:30 p.m. Mountain Time (4:30 p.m. Eastern Time)
EnCana will hold a conference call and webcast for the investment
community today, Sunday, May 11, 2008, beginning at 2:30 p.m. MT
(4:30 p.m. ET). To participate, please dial (800) 930-1353 (toll-free in
North America) or (913) 312-1487 approximately 10 minutes prior to the
conference call and quote confirmation code 6177234. An archived
recording of the call will be available from approximately 6:30 p.m. MT
on May 11, 2008 until 6:30 p.m. on May 16, 2008 by dialing (888) 203-1112
or (719) 457-0820 and entering access code 6177234. Presentation slides
to accompany this call are posted on EnCana's website.
A live audio webcast of the conference call will also be available via
EnCana's website, www.encana.com, under Investor Relations. The webcast
will be archived for approximately 90 days.
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NOTE: Non-GAAP measures
This news release contains references to cash flow, free cash flow, net
debt, capitalization and adjusted earnings before interest, tax, depreciation
and amortization (EBITDA).
- Cash flow is a non-GAAP measure defined as cash from operating
activities excluding net change in other assets and liabilities, net
change in non-cash working capital from continuing operations and net
change in non-cash working capital from discontinued operations.
- Free cash flow is a non-GAAP measure that EnCana defines as cash flow
in excess of capital investment, excluding net acquisitions and
divestitures, and is used to determine the funds available for other
investing and/or financing activities.
- Net debt is a non-GAAP measure defined as long-term debt plus current
liabilities less current assets. Capitalization is a non-GAAP measure
defined as net debt plus shareholders' equity. Net debt to
capitalization and net debt to adjusted EBITDA are two ratios
management uses to steward the company's overall debt position as
measures of the company's overall financial strength.
- Adjusted EBITDA is a non-GAAP measure defined as net earnings from
continuing operations before gain on divestitures, income taxes,
foreign exchange gains or losses, interest net, accretion of asset
retirement obligation, and depreciation, depletion and amortization.
>>
These measures have been described and presented in this news release in
order to provide shareholders and potential investors with additional
information regarding EnCana's liquidity and its ability to generate funds to
finance its operations.
EnCana Corporation
With an enterprise value of approximately $75 billion, EnCana is a
leading North American unconventional natural gas and integrated oil company.
By partnering with employees, community organizations and other businesses,
EnCana contributes to the strength and sustainability of the communities where
it operates. EnCana common shares trade on the Toronto and New York stock
exchanges under the symbol ECA.
ADVISORY REGARDING RESERVES DATA AND OTHER OIL AND GAS INFORMATION -
EnCana's disclosure of reserves data and other oil and gas information is made
in reliance on an exemption granted to EnCana by Canadian securities
regulatory authorities, which permits it to provide such disclosure in
accordance with U.S. disclosure requirements. The information provided by
EnCana may differ from the corresponding information prepared in accordance
with Canadian disclosure standards under National Instrument 51-101 Standards
of Disclosure for Oil and Gas Activities (NI 51-101). EnCana's reserves
quantities represent net proved reserves calculated using the standards
contained in Regulation S-X of the U.S. Securities and Exchange Commission.
Further information about the differences between the U.S. requirements and
the NI 51-101 requirements is set forth under the heading "Note Regarding
Reserves Data and Other Oil and Gas Information" on page 2 in EnCana's Annual
Information Form, which is incorporated herein by reference.
In this news release, certain crude oil and NGLs volumes have been
converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to
six thousand cubic feet (Mcf). Also, certain natural gas volumes have been
converted to barrels of oil equivalent (BOE) on the same basis. BOE and cfe
may be misleading, particularly if used in isolation. A conversion ratio of
one bbl to six Mcf is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent value
equivalency at the well head.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS - In the interests of
providing EnCana shareholders and potential investors with information
regarding EnCana and the proposed transaction described above in this news
release, including management's assessment of future plans and operations
relating to GasCo and IOCo, EnCana has included in this news release certain
statements and information that are forward-looking statements or information
within the meaning of applicable securities legislation, and which are
collectively referred to herein as "forward-looking statements." The
forward-looking statements in this news release include, but are not limited
to, statements and tables with respect to: the proposed transaction and
expected future attributes of each of GasCo and IOCo following such
transaction; the anticipated benefits of the transaction; future production
growth; projections that IOCo will be an industry leader in sustainable
growth; estimates of IOCo's potential compound annual growth rate through
2012; estimates of future shallow gas drilling locations and the
predictability of production and cash flow therefrom; projections of future
refinery expansions and capacities (including the anticipated capital costs
thereof and comparisons of such capital costs to the projected capital costs
of Alberta based projects); the future development potential for the Borealis
asset; GasCo's expected ranking as a gas producer (including potential future
production growth rates, free cash flow, dividends, and normal course issuer
bid share purchases); estimates of EnCana's 2008 cash flow; the expected size
and ranking of GasCo and IOCo as compared to other companies in Canada and
industry peers; the expected pro-forma characteristics of GasCo and IOCo
(including estimated 2008 natural gas, oil and NGLs production, proved
reserves, developed and undeveloped land holdings, operating cash flow,
operating costs, employees, divisions, resource plays, refineries and refining
capacities); the expected impact of the transaction on EnCana's employees,
operations, suppliers, business partners and stakeholders; statements
respecting future pre-transaction and post-transaction financial metrics
(including net debt to capitalization); estimated capitalization and adequacy
thereof for each of GasCo and IOCo; expected credit ratings for each of GasCo
and IOCo; the financing plans and initiatives that may be undertaken by IOCo;
the projected tax consequences of the transactions, including the acceleration
of future taxes and increase in cash taxes in 2008, and the tax impact on
shareholders; the impact of the transactions on employment and employment
growth; the expected date for mailing a proxy circular and completing the
transactions; and the estimated costs of the transaction.
Readers are cautioned not to place undue reliance on forward-looking
statements, as there can be no assurance that the future circumstances,
outcomes or results anticipated in or implied by such forward-looking
statements will occur or that plans, intentions or expectations upon which the
forward-looking statements are based will occur. By their nature,
forward-looking statements involve numerous assumptions, known and unknown
risks and uncertainties, both general and specific, that contribute to the
possibility that circumstances, events or outcomes anticipated or implied by
forward-looking statements will not occur, which may cause the actual
performance and financial results in future periods to differ materially from
the performance or results anticipated or implied by any such forward-looking
statements. These risks and uncertainties include, among other things: risks
associated with the ability to obtain any necessary approvals, waivers,
consents, court orders and other requirements necessary or desirable to permit
or facilitate the proposed transaction (including, regulatory and shareholder
approvals); the risk that any applicable conditions of the proposed
transaction may not be satisfied; volatility of and assumptions regarding oil
and gas prices; assumptions contained in or relevant to the company's current
corporate guidance; fluctuations in currency and interest rates; product
supply and demand; market competition; risks inherent in marketing operations
(including credit risks); imprecision of reserves estimates and estimates of
recoverable quantities of oil, bitumen, natural gas and liquids from resource
plays and other sources not currently classified as proved reserves; the
ability to successfully manage and operate the integrated North American
oilsands business with ConocoPhillips; refining and marketing margins;
potential disruption or unexpected technical difficulties in developing new
products and manufacturing processes; potential failure of new products to
achieve acceptance in the market; unexpected cost increases or technical
difficulties in constructing or modifying manufacturing or refining
facilities; unexpected difficulties in manufacturing, transporting or refining
synthetic crude oil; risks associated with technology and the application
thereof to the business of GasCo and IOCo; the ability to replace and expand
oil and gas reserves; the ability to generate sufficient cash flow from
operations to meet current and future obligations; the ability to access
external sources of debt and equity capital; the timing and the costs of well
and pipeline construction; the ability to secure adequate product
transportation; changes in royalty, tax, environmental and other laws or
regulations or the interpretations of such laws or regulations; applicable
political and economic conditions; the risk of war, hostilities, civil
insurrection, political instability and terrorist threats; risks associated
with existing and potential future lawsuits and regulatory actions; and other
risks and uncertainties described from time to time in the reports and filings
made with securities regulatory authorities by EnCana. Although EnCana
believes that the expectations represented by such forward-looking statements
are reasonable, there can be no assurance that such expectations will prove to
be correct. Readers are cautioned that the foregoing list of important factors
is not exhaustive.
Forward-looking information respecting anticipated 2008 cash flow,
operating cash flow and pre-tax cash flow for EnCana, and for GasCo and IOCo
pro-forma the proposed reorganization transaction, is based upon achieving
average production of oil and gas for 2008 as set out above, average commodity
prices for 2008 based on actual results for the first quarter of 2008, and for
the balance of 2008, a WTI price of $100/bbl for oil, a NYMEX price of
$10.25/Mcf for natural gas, an average U.S./Canadian dollar foreign exchange
rate of $0.97, an average Chicago crack spread for 2008 of $12.00/bbl for
refining margins, and an average number of outstanding shares for EnCana of
approximately 750 million. Assumptions relating to forward looking statements
generally include EnCana's current expectations and projections made by the
company in light of, and generally consistent with, its historical experience
and its perception of historical trends, as well as expectations regarding
rates of advancement and innovation, generally consistent with and informed by
its past experience, all of which are subject to the risk factors identified
elsewhere in this document.
Furthermore, the forward-looking statements contained in this news
release are made as of the date of this news release, and, except as required
by law, EnCana does not undertake any obligation to update publicly or to
revise any of the included forward-looking statements, whether as a result of
new information, future events or otherwise. The forward-looking statements
contained in this news release are expressly qualified by this cautionary
statement.
-30-
/For further information: on EnCana Corporation is available on the
company's website, www.encana.com, or by contacting: EnCana Corporate
Communications, Investor contact: Paul Gagne, Vice-President, Investor
Relations, (403) 645-4737; Ryder McRitchie, Manager, Investor Relations, (403)
645-2007; Susan Grey, Manager, Investor Relations, (403) 645-4751; Media
Contact: Alan Boras, Manager, Media Relations, (403) 645-4747/
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