NEW ORLEANS—Encana Corp. is moving swiftly to transfer operational learnings from full field development in the Permian Basin to the Midcontinent’s Stack play following the $7.7 billion stock and debt acquisition of Newfield Exploration Co. The transaction closed in February.

Encana will initiate its first cube development program in the Stack in early April, according to Doug Suttles, CEO for Encana.

Suttles spoke during the 47th annual Scotia Howard Weil Conference in New Orleans this week.

The CEO presented his case for differentiation to institutional investors in New Orleans, citing a strong balance sheet, disciplined capital allocation across the company’s multi-basin portfolio, shareholder friendly programs based on sustainable free cash flow generation and “industry leading operational execution.”

To date, Encana has achieved savings of about $400,000 per well in the Midcontinent on its 2019 goal of reducing Oklahoma Stack well cost by $1 million.

The early cost savings originated from self-sourcing chemicals and in-basin sand as well as contract renegotiations with service providers to transition to an incentive-based model that rewards speed and efficiency. Stage count rose from five to eight per day under the new contracts, Suttles told conference attendees.

“We expect to fully achieve our estimated savings in the second half of the year and are targeting total well cost of $6.9 million,” Suttles said. “This will have a significant impact on returns. We estimate that a $1 million reduction in D&C [drilling and completion] costs will improve returns by about 30% and make Anadarko well economics competitive with any unconventional play in North America.”

Additionally, Encana shaved $125 million in general and administrative cost from the Midcontinent region within eight days of closing the Newfield transaction by implementing a 35% reduction in management head count.

RELATED: Encana To Embark On $1.25 Billion Share Buyback After Closing Newfield Acquisition

Suttles indicated two-thirds of Anadarko Stack play capex will be deployed during the first half of the year. Encana inherited a high-activity commitment from Newfield but plans to level load Anadarko activity by transitioning rigs to the company’s cube development protocol.

The cube development protocol is Encana’s approach to full field development. In essence, the company co-develops multiple wells in multiple stacked layers within a sizable geographical footprint. The protocol generates scale economies to oil and gas development by reducing surface footprint, creating faster drill times and more efficient use of equipment, crews and infrastructure.

Below ground, the protocol optimizes resource recovery, reduces inter-well interference and minimizes downtime for existing wells. Basically, all wells are drilled and completed within the cube at one time, reducing cost and increasing efficiency in support services such as water recycling. Encana first applied the cube model in 2016 to the Permian Basin where the protocol addresses up to 70 wells in multiple benches per section of land.

E&Ps have worked on early iterations of full field development models in tight formation plays such as Encana’s cube development or QEP Resources Inc. tank development model or, previously, Energen Corp.’s pattern development program. All involve simultaneous operations to avoid issues associated with parent/child well interference. Diamondback Energy Inc. closed the acquisition of Energen in a $9.2 billion all stock deal in November 2018.

In the Midcontinent, Continental Resources Inc. has introduced its SpringBoard project to develop multiple wells simultaneously in the Scoop play employing a 16-rig program.

RELATED: Continental Resources’ SpringBoard Remains On Track To Grow Oil Production

In total, Encana will deploy 75% of its 2019 capital spending program of $2.7 billion to $2.9 billion in the Permian, Anadarko and Canada’s Montney play. The 2019 budget is 20% lower than 2018 and in the Anadarko (9% of 2019 spending) is “significantly less” than what Encana and Newfield would have invested prior to the transaction, Suttles said. Encana’s 2019 spending will be front-end loaded in all its portfolio regions.

Outside the three major basins at the heart of its portfolio, Encana will direct the remaining 25% of 2019 capital spending to the Eagle Ford, the Duvernay and the Williston Basin where high operational efficiencies generate high margins and abundant free cash. Encana redeploys that cash flow to the three core positions in the Permian, Anadarko and Montney.

In the Permian, Encana has drilled more than 500 wells. Current well costs are down 20% versus 2018.

“Our cost advantages stem from decreased drilling and completion times, optimized completions, application of low cost water management solutions and self-sourcing key commodities like sand and chemicals,” Suttles said.

Encana entered the Permian in 2014 through the $5.3 billion all-cash acquisition of Athlon Energy seeking to diversify a gas-dominated portfolio. Since 2014, Encana has tripled Permian production to over 100,000 barrels of oil equivalent per day and will exit 2019 with oil accounting for more than half of the company’s production.

Suttles said Encana will spend 75% of its 2019 Permian budget on the western edge of the Midland Basin in Midland, Martin and Upton counties in Texas with the remainder allocated for Howard and Glasscock counties on the east side of the Midland Basin.

 

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