EnCana drops $200M from state operations
The Denver Business Journal - March 3, 2006by Cathy ProctorDenver Business Journal
EnCana Corp., Colorado's second-largest natural gas producer last year, has cut $200 million from its 2006 budget for operations within the state -- citing the high cost of doing business on the booming Western Slope and soft commodity prices.
But so far, EnCana appears to be the only oil and gas company that's cutting its capital budget.
The $200 million cut is part of an overall, companywide $800 million reduction in 2006 capital expenditures. It means EnCana's activity in the Piceance Basin -- a prolific natural gas basin centered on Garfield County in western Colorado -- will be flat in 2006 compared to 2005, said Doug Hock, spokesman for EnCana Oil & Gas (USA) Inc., the Denver-based U.S. subsidiary of EnCana Corp. (NYSE: ECA)
Last year, EnCana drilled about 250 wells in the Piceance Basin, and had planned to boost that number to 350 wells in 2006, Hock said.
But so many companies are competing for a limited amount of equipment, crews and supplies in the area that EnCana's 2005 cost to drill and complete a natural gas well rose about 18 percent over 2004, Hock said.
At the same time, natural gas prices have dropped from their record-breaking levels over $15 per thousand cubic feet set last fall, after two hurricanes damaged infrastructure in the Gulf of Mexico and onshore in Texas and Louisiana. Futures prices on the New York Mercantile Exchange have fallen by more than 50 percent in the last two months as warm weather kept natural gas storage levels high.
The average price for natural gas for delivery in the next 12 months was about $8.30 per thousand cubic feet on March 1, down from the 2005 high of $12.40.
"Our shareholders look at our cost of capital, and we have to be prudent in how we develop our wells," Hock said.
"We have to do it in a way that's cost-effective, and if we experience high costs, that ultimately will impact the consumer as well. By keeping costs down, that savings ultimately gets passed to the consumer."
EnCana now expects to drill about 250 wells in the Piceance this year, Hock said.
Williams Cos. Inc., based in Tulsa, Okla., and Colorado's third-largest natural gas producer in 2005, has no plans to cut operations in Colorado, spokesman Kelly Swan said.
Williams and EnCana are the two largest companies working in the Piceance Basin.
"In fact, we plan to continue increasing the pace of our development there," Swan said.
Last year, Williams drilled about 350 wells in the Piceance Basin. This year, it plans to drill about 450, Swan said.
"We are increasing our activity by 100 wells in the Piceance and we have new drilling rigs coming online for us in the Piceance Basin, built specifically for conditions in the Piceance," he said.
"It's still a price environment that we believe is very favorable, and combined with that, the demand for natural gas is going to increase. The Piceance is very important to Williams and very important to the nation's energy supply. We do plan to continue to increase our activity there."
Denver-based St. Mary Land & Exploration Co., which has operations in the Gulf Coast region, Texas, New Mexico, Wyoming, Montana and South Dakota, boosted its 2006 capital budget by 42 percent to $600 million. About 38 percent of the budget is earmarked for the Rocky Mountain region.
As the company was setting its budget, it ran analyses of operations when natural gas prices were $7 per thousand cubic feet and oil was $50 per barrel, said St. Mary Chairman, CEO and President Mark Hellerstein.
"Prices have come down and you have to evaluate every individual play that you're working and make a decision. We gave ourselves some cushion," Hellerstein said, adding the company plans to focus on drilling wells rather than buying resources this year.
Denver-based Cimarex Energy Co. (NYSE: XEC) also is ramping up its capital budget for 2006 to $1 billion, up 66 percent from $601 million in 2005. About 60 percent of the money is earmarked for the Mid-Continent and Permian Basin regions, with the remaining 40 percent dedicated to the Gulf region and other areas, according to the company.
"At the current prices of services and rigs, and at the current commodity strip futures price out into the next five years, not very much of our inventory falls out [or becomes uneconomic]," said F.H. "Mick" Merelli, Cimarex's chairman, CEO and president.
"We're still under the oak tree in the $1 billion range."
Nor are state officials concerned that EnCana's move is a harbinger of an energy bust.
"It means we'll be seeing fewer permit [applications] coming through for EnCana for that part of the world, but EnCana has applied for a lot of drilling permits over the previous year," said Brian Macke, director of the Colorado Oil and Gas Conservation Commission, which issues permits for natural gas and oil wells.
"We're still continuing to see a very high level of permitting activity generally by oil and gas operators across the board," Macke said.
[Harry: Time to lighten up on drillers and some weaker resource
companies. I would expect oil prices to remain towards the higher end of the spectrum, but the weakening economy in
the US may sign a put back in commodities demand. Even a rise in the artificially low Chinese currency is not going to prevent a slowing in worldwide growth. Most of the worldwide GDP growth was due to China. The US is China's biggest trade partner. A slowing in consumption in the US as the real estate wealth effect ebbys can only have a ripple effect to the hype growth economies of China and India. If a pin drops in the US do you get a hurricane in China????] |
