Encana Conquers Permian Pipeline Mess, Selling Oil at a Premium

(Bloomberg) -- While a lack of pipeline space in the Permian Basin has hurt selling prices for many producers, Encana Corp. achieved a rare feat: It sold its oil at a premium.

Encana's Permian crude garnered $70.15 a barrel on average during the second quarter, 3 percent higher than the West Texas Intermediate benchmark. The Calgary-based driller credited the result to financial hedging, diversifying its selling markets and securing physical market access for its production.

“Our focus on market intelligence really has become a competitive advantage,” Chief Executive Officer Doug Suttles said on a conference call on Wesnesday.

The high prices for its Permian crude, along with improved production in Canada's Montney shale play, helped Encana post profit that topped analysts' estimates. Operating earnings were 21 cents a share, beating analysts' average projection of 12 cents.

Encana also said Wednesday that it's on track to expand output by more than 30 percent and to generate free cash flow this year, which it hasn't done since the fourth quarter of 2015, according to data compiled by Bloomberg. Cash from operating activities was $475 million, more than double the year-earlier period.

Liquids production from the Montney region more than doubled to more than 45,000 barrels a day, and oil output from the Permian increased 42 percent to 55,200 barrels, the company said.

The results were a “pretty straightforward beat,” with Encana showing “solid growth in liquids production coupled with strong price realizations,” Randy Ollenberger, an analyst with BMO Capital Markets, said in an email.

--With assistance from Naureen S. Malik.

To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Joe Carroll, Steve Stroth

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