UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182019
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number1-15226
ENCANA CORPORATION
(Exact name of registrant as specified in its charter)
Canada | 98-0355077 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Suite 4400, 500 Centre Street S.E., P.O. Box 2850, Calgary, Alberta, Canada, T2P 2S5
(Address of principal executive offices)
Registrant’s telephone number, including area code(403) 645-2000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | [X] | Accelerated filer | [ ] | |||
Non-accelerated filer | [ ] | Smaller reporting company | [ ] | |||
Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
Yes [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares | ECA | New York Stock Exchange |
Number of registrant’s common shares outstanding as of April | 1,406,294,708 |
ENCANA CORPORATION
FORM10-Q
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Condensed Consolidated Statement of Changes in Shareholders’ Equity | 8 | ||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | ||||
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3
DEFINITIONS
Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Encana” and the “Company” refer to Encana Corporation and its consolidated subsidiaries. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form10-Q:
“AECO” means Alberta Energy Company and is the Canadian benchmark price for natural gas.
“ASU” means Accounting Standards Update.
“bbl” or “bbls” means barrel or barrels.
“BOE” means barrels of oil equivalent.
“Btu” means British thermal units, a measure of heating value.
“DD&A” means depreciation, depletion and amortization expenses.
“FASB” means Financial Accounting Standards Board.
“Mbbls/d” means thousand barrels per day.
“MBOE/d” means thousand barrels of oil equivalent per day.
“Mcf” means thousand cubic feet.
“MD&A” means Management’s Discussion and Analysis of Financial Condition and Results of Operations.
“MMBOE” means million barrels of oil equivalent.
“MMBtu” means million Btu.
“MMcf/d” means million cubic feet per day.
“NCIB” means normal course issuer bid.
“NGL” or “NGLs” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“NYSE” means New York Stock Exchange.
“OPEC” means Organization of the Petroleum Exporting Countries.
“SEC” means United States Securities and Exchange Commission.
“TSX” means Toronto Stock Exchange.
“U.S.”, “United States” or “USA” means United States of America.
“U.S. GAAP” means U.S. Generally Accepted Accounting Principles.
“WTI” means West Texas Intermediate.
CONVERSIONS
In this Quarterly Report on Form10-Q, a conversion of natural gas volumes to BOE is on the basis of six Mcf to one bbl. BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Given that the value ratio based on the current price of oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value, particularly if used in isolation.
CONVENTIONS
Unless otherwise specified, all dollar amounts are expressed in U.S. dollars, all references to “dollars”, “$” or “US$” are to U.S. dollars and all references to “C$” are to Canadian dollars. All amounts are provided on a before tax basis, unless otherwise stated. In addition, all information provided herein is presented on an after royalties basis.
The term “liquids” is used to represent oil, NGLs and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. The term “play” is used to describe an area in which hydrocarbon accumulations or prospects of a given type occur. Encana’s focus of development is on hydrocarbon accumulations known to exist over a
4
large areal expanse and/or thick vertical section and are developed using hydraulic fracturing. This type of development typically has a lower geological and/or commercial development risk and lower average decline rate, when compared to conventional development.
The term “core asset” refers to plays that are the focus of the Company’s current capital investment and development plan. The Company continually reviews funding for development of its plays based on strategic fit, profitability and portfolio diversity and, as such, the composition of plays identified as a core asset may change over time.
References to information contained on the Company’s website atwww.encana.com are not incorporated by reference into, and does not constitute a part of, this Quarterly Report on Form10-Q.
FORWARD-LOOKING STATEMENTS AND RISK
This Quarterly Report on Form10-Q contains certain forward-looking statements or information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements include: composition of the Company’s core assets, including allocation of capital and focus of development plans; growth in long-term shareholder value; vision toof being a leading North American resource play company; statements with respect to the Company’s strategic objectives including capital allocation strategy, focus of investment, growth of high margin liquids volumes, operating and capital efficiencies and ability to preserve balance sheet strength; ability to deliver free cash flow and balance growth with return of capital to shareholders; ability to lower costs and improve efficiencies to achieve competitive advantage; ability to repeat and deploy successful practices across the Company’s multi-basin portfolio; balancing commodity portfolio;ability to realize expected synergies of the Newfield acquisition; anticipated commodity prices; success of and benefits from technology and innovation, including cube development approach and advanced completion designs; ability to optimize well and completion designs; future well inventory; anticipated drilling, number of drilling rigs and the success thereof; anticipated drilling costs and cycle times; anticipated proceeds and future benefits from various joint venture, partnership and other agreements; expected timing for construction of facilities and costs thereof; expansion of future midstream services; estimates of reserves and resources; expected production and product types; statements regarding anticipated cash flow,non-GAAP cash flow margin and leverage ratios; anticipated cash and cash equivalents; anticipated hedging and outcomes of risk management program, including exposure to certain commodity prices and foreign exchange, amount of hedged production, market access and physical sales locations; impact of changes in laws and regulations; compliance with environmental legislation and claims related to the purported causes and impact of climate change, and the costs therefrom; adequacy of provisions for abandonment and site reclamation costs; financial flexibility and discipline; ability to meet financial obligations, manage debt and financial ratios, finance growth and compliance with financial covenants; impact to the Company as a result of changes to its credit rating; access to the Company’s credit facilities; planned annualized dividend and the declaration and payment of future dividends, if any; the Company’s normal course issuer bid (“NCIB”)NCIB program, including amounts and number of shares to be acquired, anticipated timeframe, method and location of purchases, and source of funding thereof; adequacy of the Company’s provision for taxes and legal claims; projections and expectation of meeting the targets contained in the Company’s corporate guidance and five-year plan;related statements in respect of funding; ability to manage cost inflation and expected cost structures, including expected operating, transportation and processing and administrative expenses; competitiveness and pace of growth of the Company’s assets within North America and against its peers; outlook of oil and gas industry generally and impact of geopolitical environment; expected future interest expense; the Company’s commitments and obligations; statements with respect to future ceiling test impairments;obligations and anticipated payments thereunder; and the possible impact and timing of accounting pronouncements, rule changes and standards.
Readers are cautioned against unduly relying on forward-looking statements which, by their nature, involve numerous assumptions, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include: future commodity prices and differentials; foreign exchange rates; ability to access credit facilities and shelf prospectuses; assumptions contained in the Company’s corporate guidance, five-year plan and as specified herein; data contained in key modeling statistics; availability of attractive hedges and enforceability of risk management program; effectiveness of the Company’s drive to productivity and efficiencies; results from innovations; expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements; access to transportation and processing facilities where Encana operates; assumed tax, royalty and regulatory regimes; and expectations and projections made in light of, and generally consistent with, Encana’s historical experience and its perception of historical trends, including with respect to the pace of technological development, benefits achieved and general industry expectations.
5
Risks and uncertainties that may affect these business outcomes include: ability to generate sufficient cash flow to meet obligations; commodity price volatility; ability to secure adequate transportation and potential pipeline curtailments; variability and discretion of Encana’s board of directors (the “Board of Directors”) to declare and pay dividends, if any; timing and costs of well, facilities and pipeline construction; business interruption, property and casualty losses or unexpected technical
difficulties, including impact of weather; counterparty and credit risk; impact of a downgrade in credit rating and its impact on access to sources of liquidity; fluctuations in currency and interest rates; risks inherent in the Company’s corporate guidance; failure to achieve cost and efficiency initiatives; risks inherent in marketing operations; risks associated with technology; changes in or interpretation of royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations; risks associated with existing and potential lawsuits and regulatory actions made against the Company; impact of disputes arising with its partners, including suspension of certain obligations and inability to dispose of assets or interests in certain arrangements; the Company’s ability to acquire or find additional reserves; imprecision of reserves estimates and estimates of recoverable quantities, including future net revenue estimates; risks associated with past and future acquisitions or divestitures of certain assets or other transactions or receipt of amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which Encana may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which Encana may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; and other risks described herein and in Item 1A. Risk Factors of the Annual Report on Form10-K for the fiscal year ended December 31, 20172018 (“20172018 Annual Report on Form10-K”) and risks and uncertainties impacting Encana’sEncana's business as described from time to time in the Company’sCompany's other periodic filings with the SEC.
Although the Company believes 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 assumptions, risks and uncertainties referenced above are not exhaustive. Forward-looking statements are made as of the date of this document and, except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form10-Q are expressly qualified by these cautionary statements.
The reader should read carefully the risk factors described herein and in Item 1A. Risk Factors of the 20172018 Annual Report onForm 10-K for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements.
PART I
Condensed Consolidated Statement of Earnings(unaudited)
Three Months Ended March 31, | ||||||||||
(US$ millions, except per share amounts) | 2018 | 2017 (1) | ||||||||
Revenues | (Notes 3, 4) | |||||||||
Product and service revenues | $ | 1,260 | $ | 934 | ||||||
Gains (losses) on risk management, net | (Note 19) | 36 | 338 | |||||||
Sublease revenues | 17 | 17 | ||||||||
Total Revenues | 1,313 | 1,289 | ||||||||
Operating Expenses | (Note 3) | |||||||||
Production, mineral and other taxes | 29 | 29 | ||||||||
Transportation and processing | (Note 19) | 249 | 212 | |||||||
Operating | (Notes 16, 17) | 111 | 132 | |||||||
Purchased product | 273 | 171 | ||||||||
Depreciation, depletion and amortization | 275 | 187 | ||||||||
Accretion of asset retirement obligation | (Note 12) | 8 | 11 | |||||||
Administrative | (Notes 16, 17) | 31 | 58 | |||||||
Total Operating Expenses | 976 | 800 | ||||||||
Operating Income (Loss) | 337 | 489 | ||||||||
Other (Income) Expenses | ||||||||||
Interest | (Note 5) | 92 | 88 | |||||||
Foreign exchange (gain) loss, net | (Notes 6, 19) | 91 | (26 | ) | ||||||
(Gain) loss on divestitures, net | (3 | ) | 1 | |||||||
Other (gains) losses, net | (Note 17) | (3 | ) | (8 | ) | |||||
Total Other (Income) Expenses | 177 | 55 | ||||||||
Net Earnings (Loss) Before Income Tax | 160 | 434 | ||||||||
Income tax expense (recovery) | (Note 7) | 9 | 3 | |||||||
Net Earnings (Loss) | $ | 151 | $ | 431 | ||||||
Net Earnings (Loss) per Common Share | ||||||||||
Basic & Diluted | (Note 13) | $ | 0.16 | $ | 0.44 | |||||
Dividends Declared per Common Share | (Note 13) | $ | 0.015 | $ | 0.015 | |||||
Weighted Average Common Shares Outstanding (millions) | ||||||||||
Basic & Diluted | (Note 13) | 971.5 | 973.0 |
|
|
|
| Three Months Ended |
| |||||
|
|
|
| March 31, |
| |||||
(US$ millions, except per share amounts) |
|
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| (Notes 3, 4) |
|
|
|
|
|
|
|
|
Product and service revenues |
|
|
| $ | 1,572 |
|
| $ | 1,260 |
|
Gains (losses) on risk management, net |
| (Note 22) |
|
| (355 | ) |
|
| 36 |
|
Sublease revenues |
|
|
|
| 18 |
|
|
| 17 |
|
Total Revenues |
|
|
|
| 1,235 |
|
|
| 1,313 |
|
Operating Expenses |
| (Note 3) |
|
|
|
|
|
|
|
|
Production, mineral and other taxes |
|
|
|
| 48 |
|
|
| 29 |
|
Transportation and processing |
| (Note 11) |
|
| 338 |
|
|
| 249 |
|
Operating | (Notes 11, 19, 20) |
|
| 165 |
|
|
| 111 |
| |
Purchased product |
|
|
|
| 298 |
|
|
| 273 |
|
Depreciation, depletion and amortization |
|
|
|
| 377 |
|
|
| 275 |
|
Accretion of asset retirement obligation |
| (Note 14) |
|
| 9 |
|
|
| 8 |
|
Administrative | (Notes 11, 18, 19, 20) |
|
| 227 |
|
|
| 31 |
| |
Total Operating Expenses |
|
|
|
| 1,462 |
|
|
| 976 |
|
Operating Income (Loss) |
|
|
|
| (227 | ) |
|
| 337 |
|
Other (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
Interest |
| (Note 5) |
|
| 87 |
|
|
| 92 |
|
Foreign exchange (gain) loss, net |
| (Notes 6, 22) |
|
| (37 | ) |
|
| 91 |
|
(Gain) loss on divestitures, net |
|
|
|
| 1 |
|
|
| (3 | ) |
Other (gains) losses, net |
| (Notes 8, 20) |
|
| 28 |
|
|
| (3 | ) |
Total Other (Income) Expenses |
|
|
|
| 79 |
|
|
| 177 |
|
Net Earnings (Loss) Before Income Tax |
|
|
|
| (306 | ) |
|
| 160 |
|
Income tax expense (recovery) |
| (Note 7) |
|
| (61 | ) |
|
| 9 |
|
Net Earnings (Loss) |
|
|
| $ | (245 | ) |
| $ | 151 |
|
Net Earnings (Loss) per Common Share |
|
|
|
|
|
|
|
|
|
|
Basic & Diluted |
| (Note 15) |
| $ | (0.20 | ) |
| $ | 0.16 |
|
Weighted Average Common Shares Outstanding (millions) |
|
|
|
|
|
|
|
|
|
|
Basic & Diluted |
| (Note 15) |
|
| 1,221.3 |
|
|
| 971.5 |
|
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Three Months Ended March 31, | ||||||||||
(US$ millions) | 2018 | 2017 | ||||||||
Net Earnings (Loss) | $ | 151 | $ | 431 | ||||||
Other Comprehensive Income (Loss), Net of Tax | ||||||||||
Foreign currency translation adjustment | (Note 14) | 24 | (16 | ) | ||||||
Pension and other post-employment benefit plans | (Notes 14, 17) | (1 | ) | (1 | ) | |||||
Other Comprehensive Income (Loss) | 23 | (17 | ) | |||||||
Comprehensive Income (Loss) | $ | 174 | $ | 414 |
|
|
|
| Three Months Ended |
| |||||
|
|
|
| March 31, |
| |||||
(US$ millions) |
|
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) |
|
|
| $ | (245 | ) |
| $ | 151 |
|
Other Comprehensive Income (Loss), Net of Tax |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
| (Note 16) |
|
| 34 |
|
|
| 24 |
|
Pension and other post-employment benefit plans |
| (Notes 16, 20) |
|
| (1 | ) |
|
| (1 | ) |
Other Comprehensive Income (Loss) |
|
|
|
| 33 |
|
|
| 23 |
|
Comprehensive Income (Loss) |
|
|
| $ | (212 | ) |
| $ | 174 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
6
7 |
Condensed Consolidated Balance Sheet(unaudited)
|
|
|
| As at |
|
| As at |
| ||
|
|
|
| March 31, |
|
| December 31, |
| ||
(US$ millions) |
|
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
| $ | 479 |
|
| $ | 1,058 |
|
Accounts receivable and accrued revenues |
|
|
|
| 1,121 |
|
|
| 789 |
|
Risk management |
| (Notes 21, 22) |
|
| 187 |
|
|
| 554 |
|
Income tax receivable |
|
|
|
| 315 |
|
|
| 275 |
|
|
|
|
|
| 2,102 |
|
|
| 2,676 |
|
Property, Plant and Equipment, at cost: |
| (Note 10) |
|
|
|
|
|
|
|
|
Oil and natural gas properties, based on full cost accounting |
|
|
|
|
|
|
|
|
|
|
Proved properties |
|
|
|
| 48,321 |
|
|
| 41,241 |
|
Unproved properties |
|
|
|
| 4,394 |
|
|
| 3,730 |
|
Other |
|
|
|
| 897 |
|
|
| 2,122 |
|
Property, plant and equipment |
|
|
|
| 53,612 |
|
|
| 47,093 |
|
Less: Accumulated depreciation, depletion and amortization |
|
|
|
| (38,602 | ) |
|
| (38,121 | ) |
Property, plant and equipment, net |
| (Note 3) |
|
| 15,010 |
|
|
| 8,972 |
|
Restricted Cash |
| (Note 8) |
|
| 55 |
|
|
| - |
|
Other Assets | (Notes 2, 10, 11) |
|
| 1,245 |
|
|
| 147 |
| |
Risk Management |
| (Notes 21, 22) |
|
| 116 |
|
|
| 161 |
|
Deferred Income Taxes |
|
|
|
| 576 |
|
|
| 835 |
|
Goodwill |
| (Notes 3, 8) |
|
| 2,580 |
|
|
| 2,553 |
|
|
| (Note 3) |
| $ | 21,684 |
|
| $ | 15,344 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
| $ | 2,241 |
|
| $ | 1,490 |
|
Current portion of operating lease liabilities |
| (Note 11) |
|
| 92 |
|
|
| - |
|
Income tax payable |
|
|
|
| 1 |
|
|
| 1 |
|
Risk management |
| (Notes 21, 22) |
|
| 22 |
|
|
| 25 |
|
Current portion of long-term debt |
| (Note 12) |
|
| 500 |
|
|
| 500 |
|
|
|
|
|
| 2,856 |
|
|
| 2,016 |
|
Long-Term Debt |
| (Note 12) |
|
| 6,299 |
|
|
| 3,698 |
|
Operating Lease Liabilities |
| (Note 11) |
|
| 997 |
|
|
| - |
|
Other Liabilities and Provisions |
| (Note 13) |
|
| 589 |
|
|
| 1,769 |
|
Risk Management |
| (Notes 21, 22) |
|
| 21 |
|
|
| 22 |
|
Asset Retirement Obligation |
| (Note 14) |
|
| 513 |
|
|
| 365 |
|
Deferred Income Taxes |
|
|
|
| 49 |
|
|
| 27 |
|
|
|
|
|
| 11,324 |
|
|
| 7,897 |
|
Commitments and Contingencies |
| (Note 24) |
|
|
|
|
|
|
|
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Share capital - authorized unlimited common shares |
|
|
|
|
|
|
|
|
|
|
2019 issued and outstanding: 1,440.0 million shares (2018: 952.5 million shares) |
| (Note 15) |
|
| 7,827 |
|
|
| 4,656 |
|
Paid in surplus |
|
|
|
| 1,358 |
|
|
| 1,358 |
|
Retained earnings |
|
|
|
| 144 |
|
|
| 435 |
|
Accumulated other comprehensive income |
| (Note 16) |
|
| 1,031 |
|
|
| 998 |
|
Total Shareholders’ Equity |
|
|
|
| 10,360 |
|
|
| 7,447 |
|
|
|
|
| $ | 21,684 |
|
| $ | 15,344 |
|
(US$ millions) | As at March 31, 2018 | As at December 31, | ||||||||
Assets | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 433 | $ | 719 | ||||||
Accounts receivable and accrued revenues | 731 | 774 | ||||||||
Risk management | (Notes 18, 19) | 226 | 205 | |||||||
Income tax receivable | 562 | 573 | ||||||||
1,952 | 2,271 | |||||||||
Property, Plant and Equipment, at cost: | (Note 9) | |||||||||
Oil and natural gas properties, based on full cost accounting | ||||||||||
Proved properties | 40,508 | 40,228 | ||||||||
Unproved properties | 4,301 | 4,480 | ||||||||
Other | 2,241 | 2,302 | ||||||||
Property, plant and equipment | 47,050 | 47,010 | ||||||||
Less: Accumulated depreciation, depletion and amortization | (37,933 | ) | (38,056 | ) | ||||||
Property, plant and equipment, net | (Note 3) | 9,117 | 8,954 | |||||||
Other Assets | 139 | 144 | ||||||||
Risk Management | (Notes 18, 19) | 290 | 246 | |||||||
Deferred Income Taxes | 1,021 | 1,043 | ||||||||
Goodwill | (Note 3) | 2,591 | 2,609 | |||||||
(Note 3) | $ | 15,110 | $ | 15,267 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current Liabilities | ||||||||||
Accounts payable and accrued liabilities | $ | 1,432 | $ | 1,415 | ||||||
Income tax payable | 3 | 7 | ||||||||
Risk management | (Notes 18, 19) | 250 | 236 | |||||||
1,685 | 1,658 | |||||||||
Long-Term Debt | (Note 10) | 4,198 | 4,197 | |||||||
Other Liabilities and Provisions | (Note 11) | 1,958 | 2,167 | |||||||
Risk Management | (Notes 18, 19) | 17 | 13 | |||||||
Asset Retirement Obligation | (Note 12) | 443 | 470 | |||||||
Deferred Income Taxes | 33 | 34 | ||||||||
8,334 | 8,539 | |||||||||
Commitments and Contingencies | (Note 21) | |||||||||
Shareholders’ Equity | ||||||||||
Share capital - authorized unlimited common shares 2018 issued and outstanding: 963.1 million shares (2017: 973.1 million shares) | (Note 13) | 4,707 | 4,757 | |||||||
Paid in surplus | 1,358 | 1,358 | ||||||||
Accumulated deficit | (354 | ) | (429 | ) | ||||||
Accumulated other comprehensive income | (Note 14) | 1,065 | 1,042 | |||||||
Total Shareholders’ Equity | 6,776 | 6,728 | ||||||||
$ | 15,110 | $ | 15,267 |
See accompanying Notes to Condensed Consolidated Financial Statements
8 |
Condensed Consolidated Statement of Changes in Shareholders’ Equity(unaudited)
Three Months Ended March 31, 2019 (US$ millions) |
|
|
| Share Capital |
|
| Paid in Surplus |
|
| Retained Earnings (Accumulated Deficit) |
|
| Accumulated Other Comprehensive Income |
|
| Total Shareholders’ Equity |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
|
|
| $ | 4,656 |
|
| $ | 1,358 |
|
| $ | 435 |
|
| $ | 998 |
|
| $ | 7,447 |
|
Net Earnings (Loss) |
|
|
|
| - |
|
|
| - |
|
|
| (245 | ) |
|
| - |
|
|
| (245 | ) |
Dividends on Common Shares ($0.01875 per share) |
| (Note 15) |
|
| - |
|
|
| - |
|
|
| (28 | ) |
|
| - |
|
|
| (28 | ) |
Common Shares Purchased under Normal Course Issuer Bid |
| (Note 15) |
|
| (307 | ) |
|
| - |
|
|
| (93 | ) |
|
| - |
|
|
| (400 | ) |
Common Shares Issued |
| (Notes 8, 15) |
|
| 3,478 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,478 |
|
Other Comprehensive Income (Loss) |
| (Note 16) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 33 |
|
|
| 33 |
|
Impact of Adoption of Topic 842 |
| (Note 2) |
|
| - |
|
|
| - |
|
|
| 75 |
|
|
| - |
|
|
| 75 |
|
Balance, March 31, 2019 |
|
|
| $ | 7,827 |
|
| $ | 1,358 |
|
| $ | 144 |
|
| $ | 1,031 |
|
| $ | 10,360 |
|
Three Months Ended March 31, 2018 (US$ millions) | Share Capital | Paid in Surplus | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
Balance, December 31, 2017 | $ | 4,757 | $ | 1,358 | $ | (429 | ) | $ | 1,042 | $ | 6,728 | |||||||||||||
Net Earnings (Loss) | - | - | 151 | - | 151 | |||||||||||||||||||
Dividends on Common Shares | (Note 13 | ) | - | - | (15 | ) | - | (15 | ) | |||||||||||||||
Common Shares Purchased under Normal Course Issuer Bid | (Note 13 | ) | (50 | ) | - | (61 | ) | - | (111 | ) | ||||||||||||||
Common Shares Issued Under Dividend Reinvestment Plan | (Note 13 | ) | - | - | - | - | - | |||||||||||||||||
Other Comprehensive Income (Loss) | (Note 14 | ) | - | - | - | 23 | 23 | |||||||||||||||||
Balance, March 31, 2018 | $ | 4,707 | $ | 1,358 | $ | (354 | ) | $ | 1,065 | $ | 6,776 | |||||||||||||
Three Months Ended March 31, 2017 (US$ millions) | Share Capital | Paid in Surplus | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Shareholders’ Equity | |||||||||||||||||||
Balance, December 31, 2016 | $ | 4,756 | $ | 1,358 | $ | (1,198) | $ | 1,210 | $ | 6,126 | ||||||||||||||
Net Earnings (Loss) | - | - | 431 | - | 431 | |||||||||||||||||||
Dividends on Common Shares | (Note 13 | ) | - | - | (15) | - | (15 | ) | ||||||||||||||||
Common Shares Issued Under Dividend Reinvestment Plan | (Note 13 | ) | - | - | - | - | - | |||||||||||||||||
Other Comprehensive Income (Loss) | (Note 14 | ) | - | - | - | (17 | ) | (17 | ) | |||||||||||||||
Balance, March 31, 2017 | $ | 4,756 | $ | 1,358 | $ | (782) | $ | 1,193 | $ | 6,525 |
Three Months Ended March 31, 2018 (US$ millions) |
|
|
| Share Capital |
|
| Paid in Surplus |
|
| Retained Earnings (Accumulated Deficit) |
|
| Accumulated Other Comprehensive Income |
|
| Total Shareholders’ Equity |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
|
|
| $ | 4,757 |
|
| $ | 1,358 |
|
| $ | (429 | ) |
| $ | 1,042 |
|
| $ | 6,728 |
|
Net Earnings (Loss) |
|
|
|
| - |
|
|
| - |
|
|
| 151 |
|
|
| - |
|
|
| 151 |
|
Dividends on Common Shares ($0.015 per share) |
| (Note 15) |
|
| - |
|
|
| - |
|
|
| (15 | ) |
|
| - |
|
|
| (15 | ) |
Common Shares Purchased under Normal Course Issuer Bid |
| (Note 15) |
|
| (50 | ) |
|
| - |
|
|
| (61 | ) |
|
| - |
|
|
| (111 | ) |
Common Shares Issued Under Dividend Reinvestment Plan |
| (Note 15) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Other Comprehensive Income (Loss) |
| (Note 16) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23 |
|
|
| 23 |
|
Balance, March 31, 2018 |
|
|
| $ | 4,707 |
|
| $ | 1,358 |
|
| $ | (354 | ) |
| $ | 1,065 |
|
| $ | 6,776 |
|
See accompanying Notes to Condensed Consolidated Financial Statements
9 |
Condensed Consolidated Statement of Cash Flows(unaudited)
|
|
|
| Three Months Ended |
| |||||
|
|
|
| March 31, |
| |||||
(US$ millions) |
|
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
| $ | (245 | ) |
| $ | 151 |
|
Depreciation, depletion and amortization |
|
|
|
| 377 |
|
|
| 275 |
|
Accretion of asset retirement obligation |
| (Note 14) |
|
| 9 |
|
|
| 8 |
|
Deferred income taxes |
| (Note 7) |
|
| (62 | ) |
|
| 6 |
|
Unrealized (gain) loss on risk management |
| (Note 22) |
|
| 427 |
|
|
| (68 | ) |
Unrealized foreign exchange (gain) loss |
| (Note 6) |
|
| (25 | ) |
|
| 150 |
|
Foreign exchange on settlements |
| (Note 6) |
|
| (13 | ) |
|
| (50 | ) |
(Gain) loss on divestitures, net |
|
|
|
| 1 |
|
|
| (3 | ) |
Other |
|
|
|
| (47 | ) |
|
| (69 | ) |
Net change in other assets and liabilities |
|
|
|
| (11 | ) |
|
| (11 | ) |
Net change in non-cash working capital |
| (Note 23) |
|
| 118 |
|
|
| (8 | ) |
Cash From (Used in) Operating Activities |
|
|
|
| 529 |
|
|
| 381 |
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (Note 3) |
|
| (736 | ) |
|
| (508 | ) |
Acquisitions |
| (Note 9) |
|
| (22 | ) |
|
| (2 | ) |
Corporate acquisition, net of cash and restricted cash acquired |
| (Note 8) |
|
| 94 |
|
|
| - |
|
Proceeds from divestitures |
| (Note 9) |
|
| 2 |
|
|
| 19 |
|
Net change in investments and other |
|
|
|
| 54 |
|
|
| (25 | ) |
Cash From (Used in) Investing Activities |
|
|
|
| (608 | ) |
|
| (516 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
Purchase of common shares |
| (Note 15) |
|
| (400 | ) |
|
| (111 | ) |
Dividends on common shares |
| (Note 15) |
|
| (28 | ) |
|
| (15 | ) |
Finance lease payments and other financing arrangements |
|
|
|
| (20 | ) |
|
| (22 | ) |
Cash From (Used in) Financing Activities |
|
|
|
| (448 | ) |
|
| (148 | ) |
Foreign Exchange Gain (Loss) on Cash, Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
and Restricted Cash Held in Foreign Currency |
|
|
|
| 3 |
|
|
| (3 | ) |
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash |
|
|
|
| (524 | ) |
|
| (286 | ) |
Cash, Cash Equivalents and Restricted Cash, Beginning of Year |
|
|
|
| 1,058 |
|
|
| 719 |
|
Cash, Cash Equivalents and Restricted Cash, End of Period |
|
|
| $ | 534 |
|
| $ | 433 |
|
Cash, End of Period |
|
|
| $ | 66 |
|
| $ | 39 |
|
Cash Equivalents, End of Period |
|
|
|
| 413 |
|
|
| 394 |
|
Restricted Cash, End of Period |
|
|
|
| 55 |
|
|
| - |
|
Cash, Cash Equivalents and Restricted Cash, End of Period |
|
|
| $ | 534 |
|
| $ | 433 |
|
Three Months Ended March 31, | ||||||||||||
(US$ millions) | 2018 | 2017 | ||||||||||
Operating Activities | ||||||||||||
Net earnings (loss) | $ | 151 | $ | 431 | ||||||||
Depreciation, depletion and amortization | 275 | 187 | ||||||||||
Accretion of asset retirement obligation | (Note 12 | ) | 8 | 11 | ||||||||
Deferred income taxes | (Note 7 | ) | 6 | 42 | ||||||||
Unrealized (gain) loss on risk management | (Note 19 | ) | (68 | ) | (362 | ) | ||||||
Unrealized foreign exchange (gain) loss | (Note 6 | ) | 150 | (36 | ) | |||||||
Foreign exchange on settlements | (Note 6 | ) | (50 | ) | 2 | |||||||
(Gain) loss on divestitures, net | (3 | ) | 1 | |||||||||
Other | (69 | ) | 2 | |||||||||
Net change in other assets and liabilities | (11 | ) | (12 | ) | ||||||||
Net change innon-cash working capital | (Note 20 | ) | (8 | ) | (160 | ) | ||||||
Cash From (Used in) Operating Activities | 381 | 106 | ||||||||||
Investing Activities | ||||||||||||
Capital expenditures | (Note 3 | ) | (508 | ) | (399 | ) | ||||||
Acquisitions | (Note 8 | ) | (2 | ) | (46 | ) | ||||||
Proceeds from divestitures | (Note 8 | ) | 19 | 3 | ||||||||
Net change in investments and other | (25 | ) | 55 | |||||||||
Cash From (Used in) Investing Activities | (516 | ) | (387 | ) | ||||||||
Financing Activities | ||||||||||||
Purchase of common shares | (Note 13 | ) | (111 | ) | - | |||||||
Dividends on common shares | (Note 13 | ) | (15 | ) | (15 | ) | ||||||
Capital lease payments and other financing arrangements | (Note 11 | ) | (22 | ) | (16 | ) | ||||||
Cash From (Used in) Financing Activities | (148 | ) | (31 | ) | ||||||||
Foreign Exchange Gain (Loss) on Cash and Cash Equivalents Held in Foreign Currency | (3 | ) | 1 | |||||||||
Increase (Decrease) in Cash and Cash Equivalents | (286 | ) | (311 | ) | ||||||||
Cash and Cash Equivalents, Beginning of Year | 719 | 834 | ||||||||||
Cash and Cash Equivalents, End of Period | $ | 433 | $ | 523 | ||||||||
Cash, End of Period | $ | 39 | $ | 45 | ||||||||
Cash Equivalents, End of Period | 394 | 478 | ||||||||||
Cash and Cash Equivalents, End of Period | $ | 433 | $ | 523 |
See accompanying Notes to Condensed Consolidated Financial Statements
10 |
Encana is in the business of the exploration for, the development of, and the production and marketing of oil, NGLs and natural gas.
The interim Condensed Consolidated Financial Statements include the accounts of Encana and entities in which it holds a controlling interest. All intercompany balances and transactions are eliminated on consolidation. Undivided interests in oil and natural gas exploration and production joint ventures and partnerships are consolidated on a proportionate basis. Investments innon-controlled entities over which Encana has the ability to exercise significant influence are accounted for using the equity method.
The interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and the rules and regulations of the SEC. Pursuant to these rules and regulations, certain information and disclosures normally required under U.S. GAAP have been condensed or have been disclosed on an annual basis only. Accordingly, the interim Condensed Consolidated Financial Statements should be read in conjunction with the annual audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2017,2018, which are included in Item 8 of Encana’s 20172018 Annual Report on Form10-K.
The interim Condensed Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the annual audited Consolidated Financial Statements for the year ended December 31, 2017,2018, except as noted below in Note 2. The disclosures provided below are incremental to those included with the annual audited Consolidated Financial Statements.
These unaudited interim Condensed Consolidated Financial Statements reflect, in the opinion of Management, all normal and recurring adjustments necessary to present fairly the financial position and results of the Company as at and for the periods presented. Interim condensed consolidated financial results are not necessarily indicative of consolidated financial results expected for the fiscal year.
. Recent Accounting Pronouncements
2. |
|
Changes in Accounting Policies and Practices
On January 1, 2018, Encana adopted the following ASUs issued by the FASB, which have not had a material impact on the Company’s interim Condensed Consolidated Financial Statements:
|
|
New Standards Issued Not Yet Adopted
As ofOn January 1, 2019, Encana will be required to adopt ASU2016-02, “Leases”adopted ASC Topic 842, Leases (“Topic 842”) and related amendments, using the modified retrospective approach recognizing a cumulative effect adjustment at the beginning of the reporting period in which Topic 842 was applied. Results for reporting the periods beginning after January 1, 2019, are presented in accordance with Topic 842, while prior periods have not been restated and are reported in accordance with ASC Topic 840, Leases (“Topic 840”). On transition, Encana elected certain practical expedients permitted under Topic 842 which will replaceinclude:
• | No reassessment of the classification of leases previously assessed under Topic 840, whether expired or existing contracts contain leases, or initial direct costs of existing leases; and |
• | Application of Topic 842 prospectively to all new or modified land easements after January 1, 2019. |
Encana also elected the short-term lease exemption, which does not require a right-of-use (“ROU”) asset or lease liability to be recognized on the Consolidated Balance Sheet when the lease term is 12 months or less. The policy and disclosures required under Topic 840 “Leases”. The new standard will require lessees to recognizeright-of-use assets842 are included in Note 11, Leases.
11 |
In accordance with Topic 842, Encana recognized a ROU asset and relatedcorresponding lease liabilitiesliability for all leases, including leases classified as operating leases on the Consolidated Balance Sheet, other than leases with lease terms of 12 months or less. Prior to the adoption of Topic 842, operating leases were not recognized on the Consolidated Balance Sheet. There was no impact to finance leases on transition to Topic 842. The dual classification model wasimpact from recognizing operating leases on Encana’s Condensed Consolidated Balance Sheet is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Restated |
| |
|
| Reported as at |
|
| Impact of |
|
|
|
|
| Balances as at |
| |||
(US$ millions) |
| December 31, 2018 |
|
| Adoption |
|
|
|
|
| January 1, 2019 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties, based on full cost accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties |
| $ | 41,241 |
|
| $ | - |
|
|
|
|
| $ | 41,241 |
|
Unproved properties |
|
| 3,730 |
|
|
| - |
|
|
|
|
|
| 3,730 |
|
Other |
|
| 2,122 |
|
|
| (1,261 | ) |
|
|
|
|
| 861 |
|
Property, plant and equipment |
|
| 47,093 |
|
|
| (1,261 | ) |
|
|
|
|
| 45,832 |
|
Less: accumulated depreciation, depletion and amortization |
|
| (38,121 | ) |
|
| 128 |
|
|
|
|
|
| (37,993 | ) |
Property, plant and equipment, net |
|
| 8,972 |
|
|
| (1,133 | ) |
| (1 | ) |
|
| 7,839 |
|
Other Assets |
|
| 147 |
|
|
| 1,015 |
| (1), (2 | ) |
|
| 1,162 |
| |
Deferred Income Taxes |
|
| 835 |
|
|
| (28 | ) |
|
|
|
|
| 807 |
|
Total Assets |
|
| 15,344 |
|
|
| (146 | ) |
|
|
|
|
| 15,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| 1,490 |
|
|
| (12 | ) |
| (1 | ) |
|
| 1,478 |
|
Current portion of operating lease liabilities |
|
| - |
|
|
| 67 |
|
| (2 | ) |
|
| 67 |
|
Income tax payable |
|
| 1 |
|
|
| - |
|
|
|
|
|
| 1 |
|
Risk management |
|
| 25 |
|
|
| - |
|
|
|
|
|
| 25 |
|
Current portion of long-term debt |
|
| 500 |
|
|
| - |
|
|
|
|
|
| 500 |
|
|
|
| 2,016 |
|
|
| 55 |
|
|
|
|
|
| 2,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Liabilities |
|
| - |
|
|
| 948 |
|
| (2 | ) |
|
| 948 |
|
Other Liabilities and Provisions |
|
| 1,769 |
|
|
| (1,224 | ) |
| (1 | ) |
|
| 545 |
|
Total Liabilities |
|
| 7,897 |
|
|
| (221 | ) |
|
|
|
|
| 7,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
| 435 |
|
|
| 75 |
|
| (1 | ) |
|
| 510 |
|
Total Shareholders’ Equity |
|
| 7,447 |
|
|
| 75 |
|
|
|
|
|
| 7,522 |
|
Total Liabilities and Shareholders’ Equity |
| $ | 15,344 |
|
| $ | (146 | ) |
|
|
|
| $ | 15,198 |
|
(1) | In accordance with Topic 840, Encana accounted for The Bow office building as a failed sales leaseback and at the effective date of January 1, 2019, The Bow office building remained as such. On transition to Topic 842, Encana re-assessed whether a sale would have occurred at the effective date and determined that a sale occurred. As a result, Encana derecognized the asset and financing liability resulting from the failed sale leaseback transaction measured under Topic 840, recognizing the difference as an adjustment to retained earnings in the Condensed Consolidated Balance Sheet. Upon transition to Topic 842, The Bow office building was determined to be an operating lease for which a ROU asset and corresponding liability was recorded at the present value of remaining minimum lease payments. |
(2) | ROU assets for operating leases are measured at the amount equal to the lease liability and the unamortized balance of any lease incentives prior to the transition date. The lease liabilities for operating leases are measured at the present value of the remaining minimum lease payments outstanding as at January 1, 2019. |
Although Topic 842 does not have a material impact on the Condensed Consolidated Statements of Earnings or Cash Flows, the change in the accounting of The Bow office building results in: i) operating lease expense under Topic 842 reported in administrative expense, whereas for the purpose of subsequent measurementcomparative periods presented under Topic 840, Encana recorded depreciation and presentation of leasesinterest expense in the Condensed Consolidated Statement of EarningsEarnings; and ii) cash outflows presented in cash used in operating activities under Topic 842, whereas for the comparative periods presented under Topic 840, interest and financing cash outflows are presented in cash used in operating activities and cash used in financing activities, respectively, in the Condensed Consolidated Statement of Cash Flows. Topic 842 also expands disclosures related to the amount, timing and uncertainty of cash flows arising from leases. The standard will be applied using a modified retrospective approach, in addition Encana intends to elect certain practical expedients which will allow the Company to retain the classification of leases assessed under Topic 840 which commenced prior to adoption.
In January 2018, FASB issued ASU2018-01, “Land Easement Practical Expedient for Transition to Topic 842”, which permits entities to elect an optional transition practical expedient for land easements that were not previously accounted for as leases under Topic 840. The expedient provides prospective application of Topic 842 to all new or modified land easements upon adoption of the new standard. Encana intends to elect this transitional practical expedient.
Encana continues to review and analyze contracts, identify its portfolio of leased assets, gather the necessary terms and data elements, as well as identify the processes and controls required to support the accounting for leases and related disclosures. The Company is in the early stages of implementing a lease software system which will facilitate the measurement and required disclosures for operating leases. The Company anticipates the software implementation to be complete by the end of 2018. Although Encana is not able to reasonably estimate the financial impact of Topic 842 at this time, the Company anticipates there will be a material impact on the Consolidated Financial Statements resulting from the recognition of assets and liabilities from operating lease activities.
As ofOn January 1, 2019, Encana will be required to adoptadopted ASU2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments allow for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“U.S. Tax Reform”). Amendments can be applied either in the period of adoption or retrospectively to each period in which the effect of the rate change from the U.S. Tax Reform is recognized. While Encana has other post-employment benefit plans which were affected by the U.S. Tax Reform, the impact is not material to the
12 |
Company’s Consolidated Financial Statements. As a result, the Company doesdid not intend to take the election provided in the amendment.
New Standards Issued Not Yet Adopted
As of January 1, 2020, Encana will be required to adopt ASU2017-04, “Simplifying the Test for Goodwill Impairment”. The amendment eliminates the second step of the goodwill impairment test which requires the Company to measure the impairment based on the excess amount of the carrying value of the reporting unit’s goodwill over the implied fair value of its goodwill. Under this amendment, the goodwill impairment will be measured based on the excess amount of the reporting unit’s carrying value over its respective fair value. The amendment will be applied prospectively at the date of adoption. Encana is currently in the early stages of reviewing the amendment, but does not expect the amendment to have a material impact on the Company’s Consolidated Financial Statements.
3. |
|
Encana’s reportable segments are determined based on the Company’s operations and geographic locations as follows:
• | Canadian Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the Canadian cost centre. |
• | USA Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the U.S. cost centre. |
• | China Operations includes the exploration for, development of, and production of oil, NGLs and natural gas and other related activities within the China cost centre. |
• | Market Optimization is primarily responsible for the sale of the Company’s proprietary production. These results are reported in the Canadian and USA Operations. Market optimization activities include third party purchases and sales of product to provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the Market Optimization segment. Market Optimization sells substantially all of the Company’s upstream production to third party customers. Transactions between segments are based on market values and are eliminated on consolidation. |
Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once the instruments are settled, the realized gains and losses are recorded in the reporting segment to which the derivative instruments relate. Corporate and Other also includes amounts related to sublease rentals.
As of February 14, 2019, Encana’s segmented results reflect the business combination as discussed in Note 8.
13 |
Results of Operations (For the three months ended March 31)
Segment and Geographic Information
Canadian Operations | USA Operations | Market Optimization |
| Canadian Operations |
|
| USA Operations |
|
| China Operations |
| |||||||||||||||||||||||||||||||||||||
2018 | 2017 (1) | 2018 | 2017 (1) | 2018 | 2017 (1) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Product and service revenues | $ | 404 | $ | 301 | $ | 555 | $ | 447 | $ | 301 | $ | 186 |
| $ | 456 |
|
| $ | 404 |
|
| $ | 777 |
|
| $ | 555 |
|
| $ | 13 |
|
| $ | - |
| ||||||||||||
Gains (losses) on risk management, net | 12 | (21 | ) | (44 | ) | (3 | ) | - | - |
|
| 20 |
|
|
| 12 |
|
|
| 52 |
|
|
| (44 | ) |
|
| - |
|
|
| - |
| |||||||||||||||
Sublease revenues | - | - | - | - | - | - |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||||
Total Revenues | 416 | 280 | 511 | 444 | 301 | 186 |
|
| 476 |
|
|
| 416 |
|
|
| 829 |
|
|
| 511 |
|
|
| 13 |
|
|
| - |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Production, mineral and other taxes | 4 | 5 | 25 | 24 | - | - |
|
| 4 |
|
|
| 4 |
|
|
| 44 |
|
|
| 25 |
|
|
| - |
|
|
| - |
| ||||||||||||||||||
Transportation and processing | 190 | 132 | 27 | 59 | 32 | 21 |
|
| 212 |
|
|
| 190 |
|
|
| 79 |
|
|
| 27 |
|
|
| - |
|
|
| - |
| ||||||||||||||||||
Operating | 29 | 31 | 74 | 87 | 4 | 9 |
|
| 37 |
|
|
| 29 |
|
|
| 115 |
|
|
| 74 |
|
|
| 4 |
|
|
| - |
| ||||||||||||||||||
Purchased product | - | - | - | - | 273 | 171 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 77 | 64 | 185 | 106 | - | - |
|
| 92 |
|
|
| 77 |
|
|
| 274 |
|
|
| 185 |
|
|
| - |
|
|
| - |
| ||||||||||||||||||
Total Operating Expenses | 300 | 232 | 311 | 276 | 309 | 201 |
|
| 345 |
|
|
| 300 |
|
|
| 512 |
|
|
| 311 |
|
|
| 4 |
|
|
| - |
| ||||||||||||||||||
Operating Income (Loss) | $ | 116 | $ | 48 | $ | 200 | $ | 168 | $ | (8 | ) | $ | (15 | ) |
| $ | 131 |
|
| $ | 116 |
|
| $ | 317 |
|
| $ | 200 |
|
| $ | 9 |
|
| $ | - |
| ||||||||||
Corporate & Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 (1) | 2018 | 2017 (1) | |||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Product and service revenues | $ | - | $ | - | $ | 1,260 | $ | 934 | ||||||||||||||||||||||||||||||||||||||||
Gains (losses) on risk management, net | 68 | 362 | 36 | 338 | ||||||||||||||||||||||||||||||||||||||||||||
Sublease revenues | 17 | 17 | 17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||
Total Revenues | 85 | 379 | 1,313 | 1,289 | ||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Production, mineral and other taxes | - | - | 29 | 29 | ||||||||||||||||||||||||||||||||||||||||||||
Transportation and processing | - | - | 249 | 212 | ||||||||||||||||||||||||||||||||||||||||||||
Operating | 4 | 5 | 111 | 132 | ||||||||||||||||||||||||||||||||||||||||||||
Purchased product | - | - | 273 | 171 | ||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 13 | 17 | 275 | 187 | ||||||||||||||||||||||||||||||||||||||||||||
Accretion of asset retirement obligation | 8 | 11 | 8 | 11 | ||||||||||||||||||||||||||||||||||||||||||||
Administrative | 31 | 58 | 31 | 58 | ||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expenses | 56 | 91 | 976 | 800 | ||||||||||||||||||||||||||||||||||||||||||||
Operating Income (Loss) | $ | 29 | $ | 288 | 337 | 489 | ||||||||||||||||||||||||||||||||||||||||||
Other (Income) Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest | 92 | 88 | ||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange (gain) loss, net | 91 | (26 | ) | |||||||||||||||||||||||||||||||||||||||||||||
(Gain) loss on divestitures, net | (3 | ) | 1 | |||||||||||||||||||||||||||||||||||||||||||||
Other (gains) losses, net | (3 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Total Other (Income) Expenses | 177 | 55 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings (Loss) Before Income Tax | 160 | 434 | ||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense (recovery) | 9 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||
Net Earnings (Loss) | $ | 151 | $ | 431 |
|
| Market Optimization |
|
| Corporate & Other |
|
| Consolidated |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and service revenues |
| $ | 326 |
|
| $ | 301 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,572 |
|
| $ | 1,260 |
|
Gains (losses) on risk management, net |
|
| - |
|
|
| - |
|
|
| (427 | ) |
|
| 68 |
|
|
| (355 | ) |
|
| 36 |
|
Sublease revenues |
|
| - |
|
|
| - |
|
|
| 18 |
|
|
| 17 |
|
|
| 18 |
|
|
| 17 |
|
Total Revenues |
|
| 326 |
|
|
| 301 |
|
|
| (409 | ) |
|
| 85 |
|
|
| 1,235 |
|
|
| 1,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production, mineral and other taxes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 48 |
|
|
| 29 |
|
Transportation and processing |
|
| 47 |
|
|
| 32 |
|
|
| - |
|
|
| - |
|
|
| 338 |
|
|
| 249 |
|
Operating |
|
| 10 |
|
|
| 4 |
|
|
| (1 | ) |
|
| 4 |
|
|
| 165 |
|
|
| 111 |
|
Purchased product |
|
| 298 |
|
|
| 273 |
|
|
| - |
|
|
| - |
|
|
| 298 |
|
|
| 273 |
|
Depreciation, depletion and amortization |
|
| - |
|
|
| - |
|
|
| 11 |
|
|
| 13 |
|
|
| 377 |
|
|
| 275 |
|
Accretion of asset retirement obligation |
|
| - |
|
|
| - |
|
|
| 9 |
|
|
| 8 |
|
|
| 9 |
|
|
| 8 |
|
Administrative |
|
| - |
|
|
| - |
|
|
| 227 |
|
|
| 31 |
|
|
| 227 |
|
|
| 31 |
|
Total Operating Expenses |
|
| 355 |
|
|
| 309 |
|
|
| 246 |
|
|
| 56 |
|
|
| 1,462 |
|
|
| 976 |
|
Operating Income (Loss) |
| $ | (29 | ) |
| $ | (8 | ) |
| $ | (655 | ) |
| $ | 29 |
|
|
| (227 | ) |
|
| 337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 87 |
|
|
| 92 |
|
Foreign exchange (gain) loss, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (37 | ) |
|
| 91 |
|
(Gain) loss on divestitures, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
| (3 | ) |
Other (gains) losses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
| (3 | ) |
Total Other (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 79 |
|
|
| 177 |
|
Net Earnings (Loss) Before Income Tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (306 | ) |
|
| 160 |
|
Income tax expense (recovery) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (61 | ) |
|
| 9 |
|
Net Earnings (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (245 | ) |
| $ | 151 |
|
|
Intersegment Information
Market Optimization | ||||||||||||||||||||||||
Marketing Sales | Upstream Eliminations | Total | ||||||||||||||||||||||
For the three months ended March 31, | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Revenues | $ | 1,331 | $ | 956 | $ | (1,030 | ) | $ | (770 | ) | $ | 301 | $ | 186 | ||||||||||
Operating Expenses | ||||||||||||||||||||||||
Transportation and processing | 106 | 64 | (74 | ) | (43 | ) | 32 | 21 | ||||||||||||||||
Operating | 4 | 9 | - | - | 4 | 9 | ||||||||||||||||||
Purchased product | 1,229 | 898 | (956 | ) | (727 | ) | 273 | 171 | ||||||||||||||||
Operating Income (Loss) | $ | (8 | ) | $ | (15 | ) | $ | - | $ | - | $ | (8 | ) | $ | (15 | ) | ||||||||
Capital Expenditures | ||||||||||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Canadian Operations | $ | 168 | $ | 88 | ||||||||||||||||||||
USA Operations | 338 | 311 | ||||||||||||||||||||||
Corporate & Other | 2 | - | ||||||||||||||||||||||
$ | 508 | $ | 399 | |||||||||||||||||||||
Goodwill, Property, Plant and Equipment and Total Assets by Segment
|
| |||||||||||||||||||||||
Goodwill | Property, Plant and Equipment | Total Assets | ||||||||||||||||||||||
As at | As at | As at | ||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||
Canadian Operations | $ | 678 | $ | 696 | $ | 920 | $ | 862 | $ | 1,923 | $ | 1,908 | ||||||||||||
USA Operations | 1,913 | 1,913 | 6,710 | 6,555 | 9,432 | 9,301 | ||||||||||||||||||
Market Optimization | - | - | 1 | 2 | 151 | 152 | ||||||||||||||||||
Corporate & Other | - | - | 1,486 | 1,535 | 3,604 | 3,906 | ||||||||||||||||||
$ | 2,591 | $ | 2,609 | $ | 9,117 | $ | 8,954 | $ | 15,110 | $ | 15,267 |
|
|
|
|
|
|
|
|
|
| Market Optimization |
|
|
|
|
|
|
|
|
| |||||
|
| Marketing Sales |
|
| Upstream Eliminations |
|
| Total |
| |||||||||||||||
For the three months ended March 31, |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | 1,236 |
|
| $ | 1,331 |
|
| $ | (910 | ) |
| $ | (1,030 | ) |
| $ | 326 |
|
| $ | 301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and processing |
|
| 139 |
|
|
| 106 |
|
|
| (92 | ) |
|
| (74 | ) |
|
| 47 |
|
|
| 32 |
|
Operating |
|
| 10 |
|
|
| 4 |
|
|
| - |
|
|
| - |
|
|
| 10 |
|
|
| 4 |
|
Purchased product |
|
| 1,116 |
|
|
| 1,229 |
|
|
| (818 | ) |
|
| (956 | ) |
|
| 298 |
|
|
| 273 |
|
Operating Income (Loss) |
| $ | (29 | ) |
| $ | (8 | ) |
| $ | - |
|
| $ | - |
|
| $ | (29 | ) |
| $ | (8 | ) |
Capital Expenditures
|
|
|
|
|
| Three Months Ended |
| ||||||||
|
|
|
|
|
| March 31, |
| ||||||||
|
|
|
|
|
| 2019 |
|
| 2018 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Canadian Operations |
|
|
|
|
| $ | 157 |
|
| $ | 168 |
| |||
USA Operations |
|
|
|
|
|
| 577 |
|
|
| 338 |
| |||
Corporate & Other |
|
|
|
|
|
| 2 |
|
|
| 2 |
| |||
|
|
|
|
|
| $ | 736 |
|
| $ | 508 |
|
Goodwill, Property, Plant and Equipment and Total Assets by Segment
|
| Goodwill |
|
| Property, Plant and Equipment |
|
| Total Assets |
| |||||||||||||||
|
| As at |
|
| As at |
|
| As at |
| |||||||||||||||
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Operations |
| $ | 654 |
|
| $ | 640 |
|
| $ | 1,085 |
|
| $ | 999 |
|
| $ | 2,012 |
|
| $ | 1,852 |
|
USA Operations |
|
| 1,926 |
|
|
| 1,913 |
|
|
| 13,681 |
|
|
| 6,591 |
|
|
| 16,487 |
|
|
| 9,104 |
|
China Operations (1) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 70 |
|
|
| - |
|
Market Optimization |
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| 211 |
|
|
| 295 |
|
Corporate & Other |
|
| - |
|
|
| - |
|
|
| 243 |
|
|
| 1,381 |
|
|
| 2,904 |
|
|
| 4,093 |
|
|
| $ | 2,580 |
|
| $ | 2,553 |
|
| $ | 15,010 |
|
| $ | 8,972 |
|
| $ | 21,684 |
|
| $ | 15,344 |
|
(1) | China Operations total assets includes $55 million in restricted cash, which has been segregated from general operating cash to fund future reclamation costs. |
15 |
4. | Revenues from Contracts with Customers |
The table below summarizes the Company’s revenues from contracts with customers and other sources of revenues. Encana presents realized and unrealized gains and losses on certain derivative contracts within revenues.
Revenues (For the three months ended March 31)
Canadian Operations | USA Operations | Market Optimization | ||||||||||||||||||||||
For the three months ended March 31, | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Revenues from Customers | ||||||||||||||||||||||||
Product revenues(1) | ||||||||||||||||||||||||
Oil | $ | 3 | $ | 2 | $ | 473 | $ | 301 | $ | 22 | $ | 37 | ||||||||||||
NGLs | 180 | 95 | 52 | 40 | 2 | 12 | ||||||||||||||||||
Natural gas | 221 | 203 | 32 | 107 | 273 | 127 | ||||||||||||||||||
Service revenues | ||||||||||||||||||||||||
Gathering and processing | 2 | 4 | - | 6 | - | - | ||||||||||||||||||
Product and Service Revenues | 406 | 304 | 557 | 454 | 297 | 176 | ||||||||||||||||||
Other Revenues | ||||||||||||||||||||||||
Gains (losses) on risk management, net(2) | 12 | (21 | ) | (44 | ) | (3 | ) | - | - | |||||||||||||||
Sublease revenues | - | - | - | - | - | - | ||||||||||||||||||
Other Revenues | 12 | (21 | ) | (44 | ) | (3 | ) | - | - | |||||||||||||||
Total Revenues | $ | 418 | $ | 283 | $ | 513 | $ | 451 | $ | 297 | $ | 176 | ||||||||||||
Corporate & Other | Consolidated | |||||||||||||||||||||||
2018 | 2017(3) | 2018 | 2017(3) | |||||||||||||||||||||
Revenues from Customers | ||||||||||||||||||||||||
Product revenues(1) | ||||||||||||||||||||||||
Oil | $ | - | $ | - | $ | 498 | $ | 340 | ||||||||||||||||
NGLs | - | - | 234 | 147 | ||||||||||||||||||||
Natural gas | - | - | 526 | 437 | ||||||||||||||||||||
Service revenues | ||||||||||||||||||||||||
Gathering and processing | - | - | 2 | 10 | ||||||||||||||||||||
Product and Service Revenues | - | - | 1,260 | 934 | ||||||||||||||||||||
Other Revenues | ||||||||||||||||||||||||
Gains (losses) on risk management, net(2) | 68 | 362 | 36 | 338 | ||||||||||||||||||||
Sublease revenues | 17 | 17 | 17 | 17 | ||||||||||||||||||||
Other Revenues | 85 | 379 | 53 | 355 | ||||||||||||||||||||
Total Revenues | $ | 85 | $ | 379 | $ | 1,313 | $ | 1,289 |
|
| Canadian Operations |
|
| USA Operations |
|
| China Operations |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
| $ | 1 |
|
| $ | 3 |
|
| $ | 609 |
|
| $ | 473 |
|
| $ | 13 |
|
| $ | - |
|
NGLs |
|
| 204 |
|
|
| 180 |
|
|
| 97 |
|
|
| 52 |
|
|
| - |
|
|
| - |
|
Natural gas |
|
| 255 |
|
|
| 221 |
|
|
| 76 |
|
|
| 32 |
|
|
| - |
|
|
| - |
|
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and processing |
|
| - |
|
|
| 2 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Product and Service Revenues |
|
| 460 |
|
|
| 406 |
|
|
| 783 |
|
|
| 557 |
|
|
| 13 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on risk management, net (2) |
|
| 20 |
|
|
| 12 |
|
|
| 52 |
|
|
| (44 | ) |
|
| - |
|
|
| - |
|
Sublease revenues |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Other Revenues |
|
| 20 |
|
|
| 12 |
|
|
| 52 |
|
|
| (44 | ) |
|
| - |
|
|
| - |
|
Total Revenues |
| $ | 480 |
|
| $ | 418 |
|
| $ | 835 |
|
| $ | 513 |
|
| $ | 13 |
|
| $ | - |
|
|
| Market Optimization |
|
| Corporate & Other |
|
| Consolidated |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from Customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
| $ | 60 |
|
| $ | 22 |
|
| $ | - |
|
| $ | - |
|
| $ | 683 |
|
| $ | 498 |
|
NGLs |
|
| 3 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| 304 |
|
|
| 234 |
|
Natural gas |
|
| 253 |
|
|
| 273 |
|
|
| - |
|
|
| - |
|
|
| 584 |
|
|
| 526 |
|
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and processing |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| 2 |
|
Product and Service Revenues |
|
| 316 |
|
|
| 297 |
|
|
| - |
|
|
| - |
|
|
| 1,572 |
|
|
| 1,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on risk management, net (2) |
|
| - |
|
|
| - |
|
|
| (427 | ) |
|
| 68 |
|
|
| (355 | ) |
|
| 36 |
|
Sublease revenues |
|
| - |
|
|
| - |
|
|
| 18 |
|
|
| 17 |
|
|
| 18 |
|
|
| 17 |
|
Other Revenues |
|
| - |
|
|
| - |
|
|
| (409 | ) |
|
| 85 |
|
|
| (337 | ) |
|
| 53 |
|
Total Revenues |
| $ | 316 |
|
| $ | 297 |
|
| $ | (409 | ) |
| $ | 85 |
|
| $ | 1,235 |
|
| $ | 1,313 |
|
(1) | Includes revenues from production and revenues of product purchased from third parties, but excludes intercompany marketing fees transacted between the Company’s operating segments. |
(2) | Canadian |
|
The Company’s revenues from contracts with customers consists of product sales including oil, NGLs and natural gas, as well as the provision of gathering and processing services to third parties. Encana had no contract asset or liability balances during the periods presented. As at March 31, 2018,2019, receivables and accrued revenues from contracts with customers were $658$986 million ($676662 million as at December 31, 2017)2018).
Performance obligations arising from product sales contracts are typically satisfied at a point in time when the product is delivered to the customer and control is transferred. Payment from the customer is due when the product is delivered to the custody point. The Company’sEncana’s product sales are sold under short-term contracts with terms that are less than one year at either fixed or market index prices or under long-term contracts exceeding one year at market index prices.
As at March 31, 2018, all remaining performance obligations are priced at market index prices or are variable volume delivery contracts. As such, the variable consideration is allocated entirely to the wholly unsatisfied performance obligation or promise to deliver units of production, and revenue is recognized at the amount for which the Company has the right to invoice the product delivered.
Performance obligations arising from arrangements to gather and process natural gas on behalf of third parties are typically satisfied over time as the service is provided to the customer. Payment from the customer is due when the customer receives
the benefit of the service and the product is delivered to the custody point or plant tailgate. The Company’s gathering and processing services are provided on an interruptible basis with transaction prices that are for fixed prices and/or variable consideration. Variable consideration received is related to recovery of plant operating costs or escalation of the fixed price based on a consumer price index. As the service contracts are interruptible, with service provided on an “as available” basis, there are no unsatisfied performance obligations remaining at March 31, 2018.2019.
|
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Interest Expense on: | ||||||||
Debt | $ | 66 | $ | 66 | ||||
The Bow office building | 16 | 16 | ||||||
Capital leases | 5 | 5 | ||||||
Other | 5 | 1 | ||||||
$ | 92 | $ | 88 |
As at March 31, 2019, all remaining performance obligations are priced at market index prices or are variable volume delivery contracts. As such, the variable consideration is allocated entirely to the wholly unsatisfied performance obligation or promise to deliver units of production, and revenue is recognized at the amount for which the Company has the right to invoice the product delivered. As the period between when the product sales are transferred and Encana receives payments is generally 30 to 60 days, there is no financing element associated with customer contracts. In addition, Encana does not disclose unsatisfied performance obligations for customer contracts with terms less than 12 months.
5. | Interest |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
Interest Expense on: |
|
|
|
|
|
|
|
|
Debt |
| $ | 82 |
|
| $ | 66 |
|
The Bow office building (See Note 2) |
|
| - |
|
|
| 16 |
|
Finance leases (See Note 11) |
|
| 3 |
|
|
| 5 |
|
Other |
|
| 2 |
|
|
| 5 |
|
|
| $ | 87 |
|
| $ | 92 |
|
Upon adoption of Topic 842 on January 1, 2019, The Bow office building was determined to be an operating lease with lease costs recognized in administrative expense. Previously, payments related to The Bow were recognized as interest expense and principal repayments. See Notes 2 and 11 for further information.
6. | Foreign Exchange (Gain) Loss, Net |
| Three Months Ended |
| ||||||||||||||
Three Months Ended March 31, |
| March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Unrealized Foreign Exchange (Gain) Loss on: |
|
|
|
|
|
|
|
| ||||||||
Translation of U.S. dollar financing debt issued from Canada | $ | 122 | $ | (33 | ) |
| $ | (93 | ) |
| $ | 122 |
| |||
Translation of U.S. dollar risk management contracts issued from Canada | 9 | (4 | ) |
|
| (11 | ) |
|
| 9 |
| |||||
Translation of intercompany notes | 19 | 1 |
|
| 79 |
|
|
| 19 |
| ||||||
150 | (36 | ) |
|
| (25 | ) |
|
| 150 |
| ||||||
Foreign Exchange on Settlements of: |
|
|
|
|
|
|
|
| ||||||||
U.S. dollar financing debt issued from Canada |
|
| (1 | ) |
|
| - |
| ||||||||
U.S. dollar risk management contracts issued from Canada | (7 | ) | (1 | ) |
|
| - |
|
|
| (7 | ) | ||||
Intercompany notes | (50 | ) | 2 |
|
| (12 | ) |
|
| (50 | ) | |||||
Other Monetary Revaluations | (2 | ) | 9 |
|
| 1 |
|
|
| (2 | ) | |||||
$ | 91 | $ | (26 | ) |
| $ | (37 | ) |
| $ | 91 |
|
|
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Current Tax | ||||||||
Canada | $ | - | $ | (42 | ) | |||
United States | 1 | - | ||||||
Other Countries | 2 | 3 | ||||||
Total Current Tax Expense (Recovery) | 3 | (39 | ) | |||||
Deferred Tax | ||||||||
Canada | (3 | ) | 18 | |||||
United States | 4 | 15 | ||||||
Other Countries | 5 | 9 | ||||||
Total Deferred Tax Expense (Recovery) | 6 | 42 | ||||||
Income Tax Expense (Recovery) | $ | 9 | $ | 3 | ||||
Effective Tax Rate | 5.6% | 0.7% |
7. | Income Taxes |
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
Current Tax |
|
|
|
|
|
|
|
|
Canada |
| $ | - |
|
| $ | - |
|
United States |
|
| 1 |
|
|
| 1 |
|
Other Countries |
|
| - |
|
|
| 2 |
|
Total Current Tax Expense (Recovery) |
|
| 1 |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
Deferred Tax |
|
|
|
|
|
|
|
|
Canada |
|
| (38 | ) |
|
| (3 | ) |
United States |
|
| (24 | ) |
|
| 4 |
|
Other Countries |
|
| - |
|
|
| 5 |
|
Total Deferred Tax Expense (Recovery) |
|
| (62 | ) |
|
| 6 |
|
Income Tax Expense (Recovery) |
| $ | (61 | ) |
| $ | 9 |
|
Effective Tax Rate |
|
| 19.9 | % |
|
| 5.6 | % |
Encana’s interim income tax expense is determined using anthe estimated annual effective income tax rate applied toyear-to-date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, income tax related to foreign operations, the effect of legislative changes, including U.S. Tax Reform,non-taxable capital gains and losses, tax differences on divestitures and transactions, and partnership tax allocations in excess of funding.
During the three months ended March 31, 2017,2019, the current incomedeferred tax recovery was primarily due to a net loss before income tax in the successful resolution of certain tax items previously assessed by the taxing authorities relating to prior taxation years.period.
The effective tax rates of 5.619.9 percent and 0.75.6 percent for the three months ended March 31, 20182019 and March 31, 2017,2018, respectively, are lower than the Canadian statutory tax rate of 27 percent primarily due to the impact of the foreign jurisdictional tax rates relative to the Canadian statutory tax rate applied to jurisdictional earnings and partnership tax allocations in excess of funding.
8. | Business Combination |
Newfield Exploration Company Acquisition
On February 13, 2019, Encana completed the business combination with Newfield Exploration Company, a Delaware corporation (“Newfield”), pursuant to its Agreement and Plan of Merger with Newfield (the “Merger”). As a result of the Merger, Newfield stockholders received 2.6719 Encana common shares for each share of Newfield common stock that was issued and outstanding immediately prior to the effective date of the Merger. Encana issued approximately 543.4 million common shares representing a value of $3.5 billion and paid approximately $5 million in cash in respect of Newfield’s cash-settled incentive awards. Following the acquisition, Newfield’s senior notes totaling $2.45 billion remained outstanding. Transaction costs of approximately $31 million were included in other (gains) losses, net.
Newfield’s operations focused on the exploration and development of oil and gas properties located in the Anadarko and Arkoma Basins of Oklahoma, the Williston Basin of North Dakota and the Uinta Basin of Utah, as well as offshore oil assets located in China. The assets acquired generated revenues of $306 million and a net loss of $38 million for the items discussed above.period from February 14, 2019 to March 31, 2019. The results of Newfield’s operations have been included in Encana’s consolidated financial statements as of February 14, 2019.
During
18 |
Purchase Price Allocation
The transaction was accounted for under the acquisition method, which requires that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date, with any excess of the purchase price over the estimated fair value of identified net assets acquired recorded as goodwill. The purchase price allocation represents the consideration paid and the fair values of the assets acquired, and liabilities assumed as of the acquisition date. The purchase price allocation is subject to change based on information that may not yet be available, including, the valuation of any pre-acquisition contingencies, final appraisals and tax returns that provide the underlying tax basis of the net assets and liabilities acquired and uncertain tax positions. The Company expects the purchase price allocation to be completed within 12 months following the acquisition date, during which time the value of the net assets and liabilities acquired may be revised as appropriate.
Preliminary Purchase Price Allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
|
|
|
|
|
Fair value of Encana's common shares issued (1) |
|
|
|
|
|
| $ | 3,478 |
|
Fair value of Newfield liability awards paid in cash (2) |
|
|
|
|
|
|
| 5 |
|
Total Consideration |
|
|
|
|
|
| $ | 3,483 |
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
| $ | 46 |
|
Accounts receivable and accrued revenues |
|
|
|
|
|
|
| 486 |
|
Other current assets |
|
|
|
|
|
|
| 50 |
|
Proved properties |
|
|
|
|
|
|
| 5,903 |
|
Unproved properties |
|
|
|
|
|
|
| 838 |
|
Other property, plant and equipment |
|
|
|
|
|
|
| 22 |
|
Restricted cash |
|
|
|
|
|
|
| 53 |
|
Other assets |
|
|
|
|
|
|
| 105 |
|
Goodwill |
|
|
|
|
|
|
| 13 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
| (776 | ) |
Long-term debt |
|
|
|
|
|
|
| (2,603 | ) |
Operating lease liabilities |
|
|
|
|
|
|
| (76 | ) |
Other long-term liabilities |
|
|
|
|
|
|
| (68 | ) |
Asset retirement obligation |
|
|
|
|
|
|
| (184 | ) |
Deferred income taxes |
|
|
|
|
|
|
| (326 | ) |
Total Purchase Price |
|
|
|
|
|
| $ | 3,483 |
|
(1) | The fair value was based on the NYSE closing price of the Encana common shares of $6.40 on February 13, 2019. |
(2) | The fair value was based on a price of $6.50 per notional unit which was determined using a volume weighted average of the trading price of Encana common shares on the NYSE on each of the five consecutive trading days ending on the trading day that was three trading days prior to February 13, 2019. |
The Company used the income approach valuation technique for the fair value of assets acquired and liabilities assumed. The carrying amounts of cash and cash equivalents, accounts receivable and accrued revenues, restricted cash and other current assets, and accounts payable and accrued liabilities approximate their fair values due their nature and/or the short-term maturity of the instruments. The fair values of long-term debt, ROU assets and operating lease liabilities were categorized within Level 2 of the fair value hierarchy and were determined using quoted prices and rates from an available pricing source. The fair values of the proved and unproved properties, other property, plant and equipment, other assets, other liabilities and asset retirement obligation were categorized within Level 3 and were determined using relevant market assumptions, including discount rates, future commodity prices and costs, timing of development activities, projections of oil and gas reserves, and estimates for abandonment and reclamation.
Goodwill arose from the Newfield acquisition primarily from the requirement to recognize deferred taxes on the difference between the fair value of the assets acquired and liabilities assumed and the respective carry-over tax basis. Goodwill is not amortized and is not deductible for tax purposes.
19 |
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information combines the historical financial results of Encana with Newfield and has been prepared as though the acquisition had occurred on January 1, 2018. The pro forma information is not intended to reflect the actual results of operations that would have occurred if the business combination had been completed at the date indicated. In addition, the pro forma information is not intended to be a projection of Encana’s results of operations for any future period.
Additionally, pro forma earnings were adjusted to exclude acquisition-related costs incurred of approximately $69 million and severance payments made to employees which totaled approximately $113 million for the three months ended March 31, 2018, there was no change to the provisional tax adjustment recognized in 2017 resulting from there-measurement of the Company’s tax position due to a reduction of the U.S. federal corporate tax rate under U.S. Tax Reform.2019. The provisional amount recognized may change due to additional regulatory guidancepro forma financial information does not include any cost savings or other synergies that may result from the Merger or any estimated costs that have been or will be issued, and from additional analysis or changes in interpretation and assumptions ofincurred to integrate the U.S. Tax Reform made by the Company.
For the three months ended March 31 (US$ millions, except per share amounts) |
| 2019 |
|
| 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
| $ | 1,515 |
|
| $ | 1,782 |
|
Net Earnings (Loss) |
|
|
| $ | (117 | ) |
| $ | 191 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) per Common Share |
|
|
|
|
|
|
|
|
|
|
Basic & Diluted |
|
|
| $ | (0.10 | ) |
| $ | 0.13 |
|
9. |
|
Three Months Ended |
| Three Months Ended |
| |||||||||||||
March 31, |
| March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Acquisitions |
|
|
|
|
|
|
|
| ||||||||
Canadian Operations | $ | 2 | $ | 31 |
| $ | - |
|
| $ | 2 |
| ||||
USA Operations | - | 15 |
|
| 22 |
|
|
| - |
| ||||||
Total Acquisitions | 2 | 46 |
|
| 22 |
|
|
| 2 |
| ||||||
|
|
|
|
|
|
|
| |||||||||
Divestitures |
|
|
|
|
|
|
|
| ||||||||
Canadian Operations | (13) | (3) |
|
| 1 |
|
|
| (13 | ) | ||||||
USA Operations | (6) | - |
|
| (3 | ) |
|
| (6 | ) | ||||||
Total Divestitures | (19) | (3) |
|
| (2 | ) |
|
| (19 | ) | ||||||
Net Acquisitions & (Divestitures) | $ | (17) | $ | 43 |
| $ | 20 |
|
| $ | (17 | ) |
Acquisitions
For the three months ended March 31, 2018,2019, acquisitions in the Canadian and USA Operations were $2$22 million (2017(2018 - $31 million) and nil (2017 - $15 million)nil), respectively, which primarily included land purchases with oil and liquids rich potential.seismic purchases.
Divestitures
For the three months ended March 31, 2018, divestitures in the Canadian and USA Operations were $13 million (2017 - $3 million) and $6 million (2017 - nil), respectively, which primarily included the sale of certain properties that did not complement Encana’s existing portfolio of assets.
Amounts received from the Company’s divestiture transactions have been deducted from the respective Canadian and U.S. full cost pools.
|
|
10. | Property, Plant and Equipment, Net |
As at March 31, 2018 | As at December 31, 2017 |
| As at March 31, 2019 |
|
| As at December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||||||
Accumulated | Accumulated |
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||||||||||||
Cost | DD&A | Net | Cost | DD&A | Net |
| Cost |
|
| DD&A |
|
| Net |
|
| Cost |
|
| DD&A |
|
| Net |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Canadian Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Proved properties | $ | 14,366 | $ | (13,743 | ) | $ | 623 | $ | 14,555 | $ | (14,047 | ) | $ | 508 |
| $ | 14,452 |
|
| $ | (13,629 | ) |
| $ | 823 |
|
| $ | 13,996 |
|
| $ | (13,261 | ) |
| $ | 735 |
| ||||||||||
Unproved properties | 262 | - | 262 | 311 | - | 311 |
|
| 234 |
|
|
| - |
|
|
| 234 |
|
|
| 237 |
|
|
| - |
|
|
| 237 |
| ||||||||||||||||||
Other | 35 | - | 35 | 43 | - | 43 |
|
| 28 |
|
|
| - |
|
|
| 28 |
|
|
| 27 |
|
|
| - |
|
|
| 27 |
| ||||||||||||||||||
14,663 | (13,743 | ) | 920 | 14,909 | (14,047 | ) | 862 |
|
| 14,714 |
|
|
| (13,629 | ) |
|
| 1,085 |
|
|
| 14,260 |
|
|
| (13,261 | ) |
|
| 999 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
USA Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Proved properties | 26,081 | (23,426 | ) | 2,655 | 25,610 | (23,240 | ) | 2,370 |
|
| 33,812 |
|
|
| (24,319 | ) |
|
| 9,493 |
|
|
| 27,189 |
|
|
| (24,099 | ) |
|
| 3,090 |
| ||||||||||||||||
Unproved properties | 4,039 | - | 4,039 | 4,169 | - | 4,169 |
|
| 4,160 |
|
|
| - |
|
|
| 4,160 |
|
|
| 3,493 |
|
|
| - |
|
|
| 3,493 |
| ||||||||||||||||||
Other | 16 | - | 16 | 16 | - | 16 |
|
| 28 |
|
|
| - |
|
|
| 28 |
|
|
| 8 |
|
|
| - |
|
|
| 8 |
| ||||||||||||||||||
30,136 | (23,426 | ) | 6,710 | 29,795 | (23,240 | ) | 6,555 |
|
| 38,000 |
|
|
| (24,319 | ) |
|
| 13,681 |
|
|
| 30,690 |
|
|
| (24,099 | ) |
|
| 6,591 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Market Optimization | 7 | (6 | ) | 1 | 7 | (5 | ) | 2 |
|
| 7 |
|
|
| (6 | ) |
|
| 1 |
|
|
| 7 |
|
|
| (6 | ) |
|
| 1 |
| ||||||||||||||||
Corporate & Other | 2,244 | (758 | ) | 1,486 | 2,299 | (764 | ) | 1,535 |
|
| 891 |
|
|
| (648 | ) |
|
| 243 |
|
|
| 2,136 |
|
|
| (755 | ) |
|
| 1,381 |
| ||||||||||||||||
$ | 47,050 | $ | (37,933 | ) | $ | 9,117 | $ | 47,010 | $ | (38,056 | ) | $ | 8,954 |
| $ | 53,612 |
|
| $ | (38,602 | ) |
| $ | 15,010 |
|
| $ | 47,093 |
|
| $ | (38,121 | ) |
| $ | 8,972 |
|
Canadian and USA Operations property, plant and equipment include internal costs directly related to exploration, development and construction activities of $39 $79million, which have been capitalized during the three months ended March 31, 2018 (20172019 (2018 - $54$39 million). Included in Corporate and Other are $61$57 million ($6356 million as at December 31, 2017)2018) of international property costs, which have been fully impaired.
Capital
Finance Lease Arrangements
The Company has severaltwo lease arrangements that are accounted for as capitalfinance leases, includingwhich include an office building and an offshore production platform.
As at March 31, 2018,2019, the total carrying value of assets under capitalfinance lease was $45$41 million ($4641 million as at December 31, 2017)2018), net of accumulated amortization of $672$661 million ($684650 million as at December 31, 2017)2018). LiabilitiesLong-term liabilities for the capitalfinance lease arrangements are included in other liabilities and provisions in the Condensed Consolidated Balance Sheet and are disclosed in Note 11.13.
Other Arrangement
As at MarchDecember 31, 2018, Corporate and Other property, plant and equipment and total assets includeincluded a carrying value of $1,216$1,133 million ($1,255 million as at December 31, 2017) related to The Bow office building. Upon adoption of Topic 842 on January 1, 2019, The Bow office building was determined to be an operating lease as discussed in Note 2. As at March 31, 2019, other assets included a ROU asset of $902 million related to The Bow office building.
21 |
11. | Leases |
Leases entered into for the use of an asset are classified as either operating or finance, which is underdetermined at contract inception. Upon commencement of the lease, a25-year ROU asset and corresponding lease agreement. The Bowliability are recognized on the Condensed Consolidated Balance Sheet for all operating and finance leases. Encana has elected the short-term lease exemption, which does not require a ROU asset or lease liability to be recognized on the Condensed Consolidated Balance Sheet when the lease term is being depreciated12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
Upon commencement of the lease, ROU assets are measured at the initial measurement of the lease liability adjusted for any lease payments made before commencement date of the lease, less any lease incentives received and including any initial direct costs incurred. Lease liabilities are initially measured at the present value of future minimum lease payments over the60-year lease term. The discount rate used to determine the present value is the rate implicit in the lease unless that rate cannot be determined, in which case Encana’s incremental borrowing rate is used.
Operating lease ROU assets and liabilities are subsequently measured at the present value of the lease payments not yet paid and discounted at the initial discount rate at commencement of the lease, less any impairments to the ROU asset. Operating lease expense and revenue from subleases are recognized in the Condensed Consolidated Statement of Earnings on a straight-line basis over the lease term. Finance lease ROU assets are amortized on a straight-line basis over the estimated useful life of the building. Atasset if the conclusionlessee is reasonably certain to exercise a purchase option or ownership of the25-year leased asset transfers at the end of the lease term, otherwise the remaining assetleased assets are amortized over the lease term. Amortization of finance lease ROU assets is included in depreciation, depletion and corresponding liabilityamortization in the Condensed Consolidated Statement of Earnings.
Operating leases include drilling rigs, compressors, supply vessels, camps, office and buildings, certain land easements and various equipment utilized in the development and production of oil, NGLs and natural gas. Finance leases include an office building and an offshore production platform. Subleases relate to office and building leases.
Encana’s lease contracts include rights to extend leases after the initial term, ranging from month-to-month to less than 10 years. Rights to extend or terminate a lease are expectedincluded in the lease term when there is reasonable certainty the right will be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted drillings plans, anticipated changes in development strategies, historical practice in extending similar contracts and current market conditions.
Variable lease payments include changes in index rates, mobilization and demobilization costs related to oil and gas equipment, and certain reimbursable costs associated with office and building leases. Variable lease payments are recognized when incurred.
22 |
The table below summarizes Encana’s operating and finance lease costs as at and for the three months ended March 31, 2019, which include ROU assets and lease liabilities, amounts recognized in net earnings during the period and other lease information.
|
|
|
|
| ||
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet: |
|
|
|
|
|
|
Operating Lease ROU Assets |
|
|
| $ | 1,087 |
|
Finance Lease ROU Assets |
|
|
|
| 41 |
|
Operating Lease Liabilities (Current and Long-Term) |
|
|
|
| 1,089 |
|
Finance Lease Liabilities (Current and Long-Term) |
|
|
|
| 274 |
|
|
|
|
|
|
|
|
Lease Costs (1): |
|
|
|
|
|
|
Operating Lease Costs, Excluding Short-Term Leases |
|
|
|
| 44 |
|
|
|
|
|
|
|
|
Finance Lease Costs: |
|
|
|
|
|
|
Amortization of ROU assets |
|
|
|
| 1 |
|
Interest on lease liabilities |
|
|
|
| 3 |
|
Total Finance Lease Costs |
|
|
|
| 4 |
|
|
|
|
|
|
|
|
Short-Term Lease Costs |
|
|
|
| 72 |
|
Variable Lease Costs |
|
|
|
| 3 |
|
|
|
|
|
|
|
|
Sublease Income: |
|
|
|
|
|
|
Operating lease income |
|
|
|
| 13 |
|
Variable lease income |
|
|
|
| 3 |
|
|
|
|
|
|
|
|
Other Information: |
|
|
|
|
|
|
Cash Paid for Amounts Included in the Measurement of Lease Liabilities: |
|
|
|
|
|
|
Operating cash outflows from operating leases |
|
|
|
| 48 |
|
Investing cash outflows from operating leases |
|
|
|
| 66 |
|
Operating cash outflows from finance leases |
|
|
|
| 3 |
|
Financing cash outflows from finance leases |
|
|
|
| 20 |
|
|
|
|
|
|
|
|
Supplemental Non-Cash Information Related to New ROU Assets |
|
|
|
| 1 |
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
Operating leases |
|
|
|
| 5.40% |
|
Finance leases |
|
|
|
| 5.96% |
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
Operating leases |
|
|
| 16.5 years |
| |
Finance leases |
|
|
| 3.8 years |
|
(1) | Lease cost includes amounts capitalized into property, plant and equipment on the Condensed Consolidated Balance Sheet and lease expense recognized in the Condensed Consolidated Statement of Earnings. |
Operating lease expense is reflected in the Condensed Consolidated Statement of Earnings as follows:
|
|
|
| Three Months Ended |
| |
|
|
|
| March 31, 2019 |
| |
|
|
|
|
|
|
|
Operating Lease Expense |
|
|
|
|
|
|
Transportation and processing |
|
|
| $ | 1 |
|
Operating |
|
|
|
| 21 |
|
Administrative (1) |
|
|
|
| 28 |
|
Total Operating Lease Expense |
|
|
| $ | 50 |
|
(1) | Includes $23 million in operating lease expense related to The Bow office building. |
23 |
The following table outlines the Company’s future lease payments and lease liabilities related to the Company’s operating and finance leases as at March 31, 2019:
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Future Lease Payments |
| $ | 114 |
|
| $ | 127 |
|
| $ | 109 |
|
| $ | 96 |
|
| $ | 84 |
|
| $ | 1,154 |
|
| $ | 1,684 |
|
Less: Discounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 595 |
|
Present Value of Future Operating Lease Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,089 |
|
Sublease Income (undiscounted) |
| $ | (30 | ) |
| $ | (41 | ) |
| $ | (42 | ) |
| $ | (37 | ) |
| $ | (37 | ) |
| $ | (561 | ) |
| $ | (748 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Future Lease Payments |
| $ | 75 |
|
| $ | 99 |
|
| $ | 87 |
|
| $ | 8 |
|
| $ | 8 |
|
| $ | 30 |
|
| $ | 307 |
|
Less: Discounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 33 |
|
Present Value of Future Finance Lease Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 274 |
|
Sublease Income (undiscounted) (1) |
| $ | (6 | ) |
| $ | (8 | ) |
| $ | (8 | ) |
| $ | (8 | ) |
| $ | (7 | ) |
| $ | (24 | ) |
| $ | (61 | ) |
(1) | Classified as operating lease. |
Refer to Notes 14 and 25 under Item 8 of Encana’s 2018 Annual Report on Form 10-K for comparative period disclosure of future lease payments and sublease income related to capital and operating leases and The Bow office building. Operating leases in the table above includes The Bow office building which was determined to be derecognizedan operating lease on transition to Topic 842 as disclosed in Note 11.
12. | ||||||
|
As at |
As at |
| As at |
|
| As at |
| |||||||||
March 31, | December 31, |
| March 31, |
|
| December 31, |
| |||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
U.S. Dollar Denominated Debt |
|
|
|
|
|
|
|
| ||||||||
U.S. Unsecured Notes: |
|
|
|
|
|
|
|
| ||||||||
6.50% due May 15, 2019 | $ | 500 | $ | 500 |
| $ | 500 |
|
| $ | 500 |
| ||||
3.90% due November 15, 2021 | 600 | 600 |
|
| 600 |
|
|
| 600 |
| ||||||
5.75% due January 30, 2022 (See Note 8) |
|
| 750 |
|
|
| - |
| ||||||||
5.625% due July 1, 2024 (See Note 8) |
|
| 1,000 |
|
|
| - |
| ||||||||
5.375% due January 1, 2026 (See Note 8) |
|
| 700 |
|
|
| - |
| ||||||||
8.125% due September 15, 2030 | 300 | 300 |
|
| 300 |
|
|
| 300 |
| ||||||
7.20% due November 1, 2031 | 350 | 350 |
|
| 350 |
|
|
| 350 |
| ||||||
7.375% due November 1, 2031 | 500 | 500 |
|
| 500 |
|
|
| 500 |
| ||||||
6.50% due August 15, 2034 | 750 | 750 |
|
| 750 |
|
|
| 750 |
| ||||||
6.625% due August 15, 2037 | 462 | 462 |
|
| 462 |
|
|
| 462 |
| ||||||
6.50% due February 1, 2038 | 505 | 505 |
|
| 505 |
|
|
| 505 |
| ||||||
5.15% due November 15, 2041 | 244 | 244 |
|
| 244 |
|
|
| 244 |
| ||||||
Total Principal | 4,211 | 4,211 |
|
| 6,661 |
|
|
| 4,211 |
| ||||||
|
|
|
|
|
|
|
| |||||||||
Increase in Value of Debt Acquired | 25 | 26 |
|
| 172 |
|
|
| 22 |
| ||||||
Unamortized Debt Discounts and Issuance Costs | (38) | (40) |
|
| (34 | ) |
|
| (35 | ) | ||||||
Current Portion of Long-Term Debt | - | - | ||||||||||||||
Total Long-Term Debt |
| $ | 6,799 |
|
| $ | 4,198 |
| ||||||||
$ | 4,198 | $ | 4,197 |
|
|
|
|
|
|
|
| |||||
Current Portion |
| $ | 500 |
|
| $ | 500 |
| ||||||||
Long-Term Portion |
|
| 6,299 |
|
|
| 3,698 |
| ||||||||
|
| $ | 6,799 |
|
| $ | 4,198 |
|
As at March 31, 2018,2019, total long-term debt had a carrying value of $6,799 million and a fair value of $7,461 million (as at December 31, 2018 - carrying value of $4,198 million and a fair value of $4,909 million (as at December 31, 2017 - carrying value of $4,197 million and a fair value of $5,042$4,511 million). The estimated fair value of long-term borrowings is categorized within Level 2 of the fair value hierarchy and has been determined based on market
24 |
information of long-term debt with similar terms and maturity, or by discounting future payments of interest and principal at interest rates expected to be available to the Company at period end.
13. |
|
As at |
As at |
| As at |
|
| As at |
| |||||||||
March 31, | December 31, |
| March 31, |
|
| December 31, |
| |||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
The Bow Office Building | $ | 1,304 | $ | 1,344 |
| $ | - |
|
| $ | 1,224 |
| ||||
Capital Lease Obligations | 275 | 295 | ||||||||||||||
Finance Lease Obligations (See Note 11) |
|
| 189 |
|
|
| 211 |
| ||||||||
Unrecognized Tax Benefits | 197 | 202 |
|
| 171 |
|
|
| 167 |
| ||||||
Pensions and Other Post-Employment Benefits | 116 | 116 |
|
| 132 |
|
|
| 105 |
| ||||||
Long-Term Incentive Costs (See Note 16) | 32 | 175 | ||||||||||||||
Other Derivative Contracts (See Notes 18, 19) | 13 | 14 | ||||||||||||||
Long-Term Incentive Costs (See Note 19) |
|
| 26 |
|
|
| 34 |
| ||||||||
Other Derivative Contracts (See Notes 21, 22) |
|
| 8 |
|
|
| 10 |
| ||||||||
Other | 21 | 21 |
|
| 63 |
|
|
| 18 |
| ||||||
$ | 1,958 | $ | 2,167 |
| $ | 589 |
|
| $ | 1,769 |
|
The Bow Office Building
As described in Note 9, Encana has recognized the accumulated costs forUpon adoption of Topic 842 on January 1, 2019, The Bow office building which is under a25-year lease agreement. At the conclusion of the lease term, the remaining asset and corresponding liability are expectedwas determined to be derecognized. Encana has also subleased approximately 50 percent of The Bow office space under the lease agreement. The total expected future principalan operating lease. See Notes 2 and interest payments related to the25-year lease agreement and the total undiscounted future amounts expected to be recovered from the sublease are outlined below.11 for further information.
2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||||
Expected Future Lease Payments | $ | 55 | $ | 75 | $ | 75 | $ | 76 | $ | 76 | $ | 1,260 | $ | 1,617 | ||||||||||||||
Less: Amounts Representing Interest | 47 | 63 | 61 | 61 | 60 | 781 | 1,073 | |||||||||||||||||||||
Present Value of Expected Future Lease Payments | $ | 8 | $ | 12 | $ | 14 | $ | 15 | $ | 16 | $ | 479 | $ | 544 | ||||||||||||||
Sublease Recoveries (undiscounted) | $ | (27 | ) | $ | (37 | ) | $ | (37 | ) | $ | (37 | ) | $ | (38 | ) | $ | (619 | ) | $ | (795 | ) | |||||||
Capital Lease Obligations
| ||||||||||||||||||||||||||||
As described in Note 9, the Company has several lease arrangements that are accounted for as capital leases including an office building and the Deep Panuke offshore Production Field Centre (“PFC”). Variable interests related to the PFC are described in Note 15.
|
| |||||||||||||||||||||||||||
The total expected future lease payments related to the Company’s capital lease obligations are outlined below.
|
| |||||||||||||||||||||||||||
2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||||
Expected Future Lease Payments | $ | 75 | $ | 99 | $ | 99 | $ | 87 | $ | 8 | $ | 38 | $ | 406 | ||||||||||||||
Less: Amounts Representing Interest | 15 | 15 | 10 | 4 | 2 | 5 | 51 | |||||||||||||||||||||
Present Value of Expected Future Lease Payments | $ | 60 | $ | 84 | $ | 89 | $ | 83 | $ | 6 | $ | 33 | $ | 355 |
14. | ||||||
|
|
| As at |
|
| As at |
| ||||||||||
| March 31, |
|
| December 31, |
| |||||||||||
As at March 31, | As at 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Asset Retirement Obligation, Beginning of Year | $ | 514 | $ | 687 |
| $ | 455 |
|
| $ | 514 |
| ||||
Liabilities Incurred and Acquired | 5 | 11 | ||||||||||||||
Liabilities Incurred |
|
| 3 |
|
|
| 17 |
| ||||||||
Liabilities Acquired (See Note 8) |
|
| 184 |
|
|
| - |
| ||||||||
Liabilities Settled and Divested | (4 | ) | (333 | ) |
|
| (11 | ) |
|
| (56 | ) | ||||
Change in Estimated Future Cash Outflows | - | 88 |
|
| - |
|
|
| (20 | ) | ||||||
Accretion Expense | 8 | 37 |
|
| 9 |
|
|
| 32 |
| ||||||
Foreign Currency Translation | (11 | ) | 24 |
|
| 7 |
|
|
| (32 | ) | |||||
Asset Retirement Obligation, End of Period | $ | 512 | $ | 514 |
| $ | 647 |
|
| $ | 455 |
| ||||
|
|
|
|
|
|
|
| |||||||||
Current Portion | $ | 69 | $ | 44 |
| $ | 134 |
|
| $ | 90 |
| ||||
Long-Term Portion | 443 | 470 |
|
| 513 |
|
|
| 365 |
| ||||||
$ | 512 | $ | 514 |
| $ | 647 |
|
| $ | 455 |
|
15. |
|
Authorized
The Company is authorized to issue an unlimited number of no par value common shares and Class A Preferred Shares limited to a number equal to not more than 20 percent of the issued and outstanding number of common shares at the time of issuance. No Class A Preferred Shares are outstanding.
25 |
Issued and Outstanding
As at March 31, 2018 | As at December 31, 2017 |
| As at March 31, 2019 |
|
| As at December 31, 2018 |
| |||||||||||||||||||||||||
Number (millions) | Amount | Number (millions) | Amount |
| Number (millions) |
|
| Amount |
|
| Number (millions) |
|
| Amount |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Common Shares Outstanding, Beginning of Year | 973.1 | $ | 4,757 | 973.0 | $ | 4,756 |
|
| 952.5 |
|
| $ | 4,656 |
|
|
| 973.1 |
|
| $ | 4,757 |
| ||||||||||
Common Shares Purchased | (10.0 | ) | (50 | ) | - | - |
|
| (55.9 | ) |
|
| (307 | ) |
|
| (20.7 | ) |
|
| (102 | ) | ||||||||||
Common Shares Issued |
|
| 543.4 |
|
|
| 3,478 |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Common Shares Issued Under Dividend Reinvestment Plan | - | - | 0.1 | 1 |
|
| - |
|
|
| - |
|
|
| 0.1 |
|
|
| 1 |
| ||||||||||||
Common Shares Outstanding, End of Period | 963.1 | $ | 4,707 | 973.1 | $ | 4,757 |
|
| 1,440.0 |
|
| $ | 7,827 |
|
|
| 952.5 |
|
| $ | 4,656 |
|
During
On February 13, 2019, Encana completed the acquisition of all the issued and outstanding shares of common stock of Newfield whereby Encana issued approximately 543.4 million common shares to Newfield shareholders, representing an exchange ratio of 2.6719 Encana common shares for each share of Newfield common stock held. See Note 8 for further information on the business combination.
Normal Course Issuer Bid
On February 27, 2019, the Company announced that the TSX accepted the Company’s notice of intention to purchase, for cancellation, up to approximately 149.4 million Encana common shares pursuant to a NCIB over a 12-month period from March 4, 2019 to March 3, 2020.
All purchases are made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, with any excess allocated to retained earnings/accumulated deficit.
For the three months ended March 31, 2019, the Company purchased approximately 55.9 million common shares for total consideration of approximately $400 million. Of the amount paid, $307 million was charged to share capital and $93 million was charged to retained earnings.
For the three months ended March 31, 2018, Encana issued 23,023the Company purchased 10 million common shares totaling $0.3 million under the Company’sprevious NCIB which was in place from February 28, 2018 to February 27, 2019 for total consideration of approximately $111 million. Of the amount paid, $50 million was charged to share capital and $61 million was charged to accumulated deficit.
For the twelve months ended December 31, 2018, the Company purchased approximately 20.7 million common shares under the previous NCIB which was in place from February 28, 2018 to February 27, 2019 for total consideration of approximately $250 million. Of the amount paid, $102 million was charged to share capital and $148 million was charged to retained earnings.
Dividend Reinvestment Plan
OnFebruary 28, 2019, Encana suspended its dividend reinvestment plan (“DRIP”). During the twelve months ended December 31, 2017,2018, Encana issued 58,48069,329 common shares totaling $0.6 million under the DRIP.
Dividends
During the three months ended March 31, 2018,2019, Encana declared and paid dividends of $0.015$0.01875 per common share totaling $15$28 million (2017(2018 - $0.015 per common share totaling $15 million). For the three months ended March 31, 2018, the dividends paid included $0.3 million in common shares issued in lieu of cash dividends under the DRIP (2017 - $0.2 million).DRIP.
On April 30, 2018,29, 2019, the Board of Directors declared a dividend of $0.015$0.01875 per common share payable on June 29, 201828, 2019 to common shareholders of record as of June 15, 2018.14, 2019.
Normal Course Issuer Bid
26 |
On February 26, 2018, the Company announced it received approval from the TSX to purchase, for cancellation, up to 35 million common shares pursuant to a normal course issuer bid (“NCIB”) over a12-month period from February 28, 2018 to February 27, 2019. The Company has authorization from its Board to spend up to $400 million on the NCIB.
All purchases are made in accordance with the NCIB at prevailing market prices plus brokerage fees, with consideration allocated to share capital up to the average carrying amount of the shares, and any excess is allocated to retained earnings/accumulated deficit.
During the three months ended March 31, 2018, the Company purchased 10 million common shares for total consideration of approximately $111 million. Of the amount paid, $50 million was charged to share capital and $61 million was charged to accumulated deficit.
Earnings Per Common Share
The following table presents the computation of net earnings (loss) per common share:
|
| Three Months Ended |
| ||||||||||||||
Three Months Ended March 31, |
|
| March 31, |
| |||||||||||||
(US$ millions, except per share amounts) | 2018 | 2017 |
|
| 2019 |
|
| 2018 |
| ||||||||
|
|
|
|
|
|
|
|
| |||||||||
Net Earnings (Loss) | $ | 151 | $ | 431 |
|
| $ | (245 | ) |
| $ | 151 |
| ||||
|
|
|
|
|
|
|
|
| |||||||||
Number of Common Shares: |
|
|
|
|
|
|
|
|
| ||||||||
Weighted average common shares outstanding - Basic | 971.5 | 973.0 |
|
|
| 1,221.3 |
|
|
| 971.5 |
| ||||||
Effect of dilutive securities | - | - |
|
|
| - |
|
|
| - |
| ||||||
Weighted average common shares outstanding - Diluted | 971.5 | 973.0 | |||||||||||||||
Weighted Average Common Shares Outstanding - Diluted |
|
|
| 1,221.3 |
|
|
| 971.5 |
| ||||||||
|
|
|
|
|
|
|
|
| |||||||||
Net Earnings (Loss) per Common Share Basic & Diluted | $ | 0.16 | $ | 0.44 | |||||||||||||
Net Earnings (Loss) per Common Share |
|
|
|
|
|
|
|
|
| ||||||||
Basic & Diluted |
|
| $ | (0.20 | ) |
| $ | 0.16 |
|
Encana Stock Option Plan
Encana has share-based compensation plans that allow employees to purchase common shares of the Company. Option exercise prices are not less than the market value of the common shares on the date the options are granted. All options outstanding as at March 31, 20182019 have associated Tandem Stock Appreciation Rights (“TSARs”) attached. In lieu of exercising the option, the associated TSARs give the option holder the right to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of the exercise over the original grant price.
In addition, certain stock options granted are performance-based whereby vesting is also subject to Encana attaining prescribed performance relative to predetermined key measures. Historically, most holders of options with TSARs have elected to exercise their stock options as a Stock Appreciation Right (“SAR”) in exchange for a cash payment. As a result, outstanding TSARs are not considered potentially dilutive securities.
Encana Restricted Share Units (“RSUs”)
Encana has a share-based compensation plan whereby eligible employees and Directors are granted RSUs. An RSU is a conditional grant to receive the equivalent of an Encana common share upon vesting of the RSUs and in accordance with the terms and conditions of the RSU Plancompensation plan and Grant Agreement.grant agreements. The Company currently settles vested RSUs in cash. As a result, RSUs are not considered potentially dilutive securities.
16. | ||
Accumulated Other Comprehensive Income |
| Three Months Ended |
| ||||||||||||||
Three Months Ended March 31, |
| March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Foreign Currency Translation Adjustment |
|
|
|
|
|
|
|
| ||||||||
Balance, Beginning of Year | $ | 1,029 | $ | 1,200 |
| $ | 976 |
|
| $ | 1,029 |
| ||||
Change in Foreign Currency Translation Adjustment | 24 | (16 | ) |
|
| 34 |
|
|
| 24 |
| |||||
Balance, End of Period | $ | 1,053 | $ | 1,184 |
| $ | 1,010 |
|
| $ | 1,053 |
| ||||
|
|
|
|
|
|
|
| |||||||||
Pension and Other Post-Employment Benefit Plans |
|
|
|
|
|
|
|
| ||||||||
Balance, Beginning of Year | $ | 13 | $ | 10 |
| $ | 22 |
|
| $ | 13 |
| ||||
Reclassification of Net Actuarial (Gains) and Losses to Net Earnings (See Note 17) | (1 | ) | (1 | ) | ||||||||||||
Reclassification of Net Actuarial (Gains) and Losses to Net Earnings (See Note 20) |
|
| (1 | ) |
|
| (1 | ) | ||||||||
Income Taxes | - | - |
|
| - |
|
|
| - |
| ||||||
Balance, End of Period | $ | 12 | $ | 9 |
| $ | 21 |
|
| $ | 12 |
| ||||
Total Accumulated Other Comprehensive Income | $ | 1,065 | $ | 1,193 |
| $ | 1,031 |
|
| $ | 1,065 |
|
27 |
| Variable Interest Entities |
Production Field Centre
In 2008, Encana entered into a contract for the design, construction and operation of the PFCan offshore Production Field Centre (“PFC”) at its Deep Panuke facility. Upon commencement of operations in December 2013, Encana recognized the PFC as a capitalfinance lease asset. Under the lease contract, Encana has a purchase option and the option to extend the lease for 12one-year terms at fixed prices after the initial lease term expires in 2021.
As a result of the purchase option and fixed price renewal options, Encana has determined it holds variable interests and that the related leasing entity qualifies as a variable interest entity (“VIE”). Encana is not the primary beneficiary of the VIE as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. Encana is not required to provide any financial support or guarantees to the leasing entity or its affiliates, other than the contractual payments under the lease and operating agreements. Encana’s maximum exposure is the expected lease payments over the initial contract term. As at March 31, 2018,2019, Encana had a capitalfinance lease obligation of $296$221 million ($314240 million as at December 31, 2017)2018) related to the PFC.
Veresen Midstream Limited Partnership
Veresen Midstream Limited Partnership (“VMLP”) provides gathering, compression and processing services under various agreements related to the Company’s development of liquids and natural gas production in the Montney play. As at March 31, 2018,2019, VMLP provides approximately 1,1101,146 MMcf/d of natural gas gathering and compression and 600879 MMcf/d of natural gas processing under long-term service agreements with remaining terms ranging from up to 1312 to 2726 years and have various renewal terms providing up to a potential maximum of 10 years.
Encana has determined that VMLP is a VIE and that Encana holds variable interests in VMLP. Encana is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact VMLP’s economic performance. These key activities relate to the construction, operation, maintenance and marketing of the assets owned by VMLP. The variable interests arise from certain terms under the various long-term service agreements and include: i) a take or pay for volumes in certain agreements; ii) an operating fee of which a portion can be converted into a fixed fee once VMLP assumes operatorship of certain assets; and iii) a potential payout of minimum costs in certain agreements. The potential payout of minimum costs will be assessed in the eighth year of the assets’ service period and is based on whether there is an overall shortfall of total system cash flows from natural gas gathered and compressed under certain agreements. The potential payout amount can be reduced in the event VMLP markets unutilized capacity to third party users. Encana is not required to provide any financial support or guarantees to VMLP.
As a result of Encana’s involvement with VMLP, the maximum total exposure, which represents the potential exposure to Encana in the event the assets under the agreements are deemed worthless, is estimated to be $2,390$2,345 million as at March 31, 2018.2019. The estimate comprises the take or pay volume commitments and the potential payout of minimum costs. The take or pay volume commitments associated with certain gathering and processing assets are included in Note 2124 under Transportation and Processing. The potential payout requirement is highly uncertain as the amount is contingent on future production estimates, pace of development and the amount of capacity contracted to third parties. As at March 31, 2018,2019, there were no accounts payable and accrued liabilities outstanding related to the take or pay commitment.
|
18. | Restructuring Charges |
In February 2019, in conjunction with the Newfield business combination as described in Note 8, Encana announced workforce reductions to better align staffing levels and the organizational structure with the Company’s strategy. During the three months ended March 31, 2019, the Company incurred total restructuring charges of $113 million, before tax, primarily related to severance costs. As at March 31, 2019, $64 million remains accrued and is expected to be paid during the remainder of 2019.
Restructuring charges are included in administrative expense presented in the Corporate and Other segment in the Condensed Consolidated Statement of Earnings.
|
|
| Three Months Ended |
| ||||||
|
|
| March 31, |
| ||||||
|
|
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Employee Severance and Benefits |
|
|
| $ | 112 |
|
| $ | - |
|
Outplacement, Moving and Other Expenses |
|
|
|
| 1 |
|
|
| - |
|
Restructuring Expenses |
|
|
| $ | 113 |
|
| $ | - |
|
|
|
|
| As at March 31, 2019 |
|
| As at December 31, 2018 |
| ||
|
|
|
|
|
|
|
|
|
|
|
Outstanding Restructuring Accrual, Beginning of Year |
|
|
| $ | - |
|
| $ | - |
|
Restructuring Expenses Incurred |
|
|
|
| 113 |
|
|
| - |
|
Restructuring Costs Paid |
|
|
|
| (49 | ) |
|
| - |
|
Outstanding Restructuring Accrual, End of Period (1) |
|
|
| $ | 64 |
|
| $ | - |
|
(1) Included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet.
19. | Compensation Plans |
Encana has a number of compensation arrangements under which the Company awards various types of long-term incentive grants to eligible employees and Directors. They may include TSARs, Performance TSARs, SARs, Performance Share Units (“PSUs”), Deferred Share Units (“DSUs”) and RSUs. These compensation arrangements are share-based.
Encana accounts for TSARs, Performance TSARs, SARs, PSUs and RSUs held by employees as cash-settled share-based payment transactions and, accordingly, accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes-Merton and other fair value models.
The following weighted average assumptions were used to determine the fair value of the share units held by employees:outstanding:
As at March 31, 2018 |
As at March 31, 2017 |
| As at March 31, 2019 |
|
| As at March 31, 2018 |
| |||||||||||||||||||
US$ Share Units | C$ Share Units | US$ Share Units | C$ Share Units |
| US$ Share Units |
| C$ Share Units |
|
| US$ Share Units |
| C$ Share Units |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Risk Free Interest Rate | 1.79% | 1.79% | 0.74% | 0.74% |
| 1.49% |
| 1.49% |
|
| 1.79% |
| 1.79% |
| ||||||||||||
Dividend Yield | 0.55% | 0.54% | 0.51% | 0.51% |
| 1.04% |
| 1.03% |
|
| 0.55% |
| 0.54% |
| ||||||||||||
Expected Volatility Rate(1) | 58.46% | 54.78% | 58.12% | 54.02% |
| 43.95% |
| 41.92% |
|
| 58.46% |
| 54.78% |
| ||||||||||||
Expected Term | 2.0 yrs | 2.1 yrs | 1.9 yrs | 1.9 yrs |
| 3.0 yrs |
| 2.6 yrs |
|
| 2.0 yrs |
| 2.1 yrs |
| ||||||||||||
Market Share Price | US$11.00 | C$14.17 | US$11.71 | C$15.58 |
| US$7.24 |
| C$9.68 |
|
| US$11.00 |
| C$14.17 |
|
(1) | Volatility was estimated using historical rates. |
29 |
The Company has recognized the following share-based compensation costs:
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total Compensation Costs of Transactions Classified as Cash-Settled | $ | (27 | ) | $ | 34 |
| $ | 64 |
|
| $ | (27 | ) | |||||
Less: Total Share-Based Compensation Costs Capitalized | 9 | (11 | ) |
|
| (18 | ) |
|
| 9 |
| |||||||
Total Share-Based Compensation Expense (Recovery) | $ | (18 | ) | $ | 23 |
| $ | 46 |
|
| $ | (18 | ) | |||||
|
|
|
|
|
|
|
| |||||||||||
Recognized on the Condensed Consolidated Statement of Earnings in: |
|
|
|
|
|
|
|
| ||||||||||
Operating | $ | (6 | ) | $ | 8 |
| $ | 14 |
|
| $ | (6 | ) | |||||
Administrative | (12 | ) | 15 |
|
| 32 |
|
|
| (12 | ) | |||||||
$ | (18 | ) | $ | 23 |
| $ | 46 |
|
| $ | (18 | ) |
As at March 31, 2018,2019, the liability for share-based payment transactions totaled $217$83 million ($327165 million as at December 31, 2017)2018), of which $185$57 million ($152131 million as at December 31, 2017)2018) is recognized in accounts payable and accrued liabilities and $32$26 million ($17534 million as at December 31, 2017)2018) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.
As at March 31, 2018 | As at December 31, |
|
|
|
| As at March 31, 2019 |
| As at December 31, 2018 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Liability for Cash-Settled Share-Based Payment Transactions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Unvested | $ | 167 | $ | 274 |
|
|
|
|
| $ | 54 |
|
| $ | 148 |
| ||||
Vested | 50 | 53 |
|
|
|
|
|
| 29 |
|
|
| 17 |
| ||||||
$ | 217 | $ | 327 |
|
|
|
|
| $ | 83 |
|
| $ | 165 |
|
The following units were granted primarily in conjunction with the Company’s February annual grant of long-term incentive award.awards. The TSARs, SARs, PSUs and RSUs were granted at the volume-weighted average trading price of Encana’s common shares for the five days prior to the grant date.
Three Months Ended March 31, | ||||
TSARs | 919 | |||
SARs | 1,537 | |||
PSUs | 7,572 | |||
DSUs | 68 | |||
RSUs | 10,710 |
20. | ||
Pension and Other Post-Employment Benefits |
The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits (“OPEB”) for the three months ended March 31 as follows:
Pension Benefits | OPEB | Total |
| Pension Benefits |
|
| OPEB |
|
| Total |
| |||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net Defined Periodic Benefit Cost | $ | - | $ | - | $ | 2 | $ | 2 | $ | 2 | $ | 2 |
| $ | - |
|
| $ | - |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 6 |
|
| $ | 2 |
| ||||||||||||
Defined Contribution Plan Expense | 6 | 6 | - | - | 6 | 6 |
|
| 6 |
|
|
| 6 |
|
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| 6 |
| ||||||||||||||||||
Total Benefit Plans Expense | $ | 6 | $ | 6 | $ | 2 | $ | 2 | $ | 8 | $ | 8 |
| $ | 6 |
|
| $ | 6 |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 12 |
|
| $ | 8 |
|
Of the total benefit plans expense, $6 million (2017(2018 - $6 million) was included in operating expense and $2 million (2017(2018 - $2 million) was included in administrative expense.
30 |
The net defined periodic benefit cost for the three months ended March 31 is as follows:
Defined Benefits | OPEB | Total |
| Defined Benefits |
|
| OPEB |
|
| Total |
| |||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Service Cost | $ | - | $ | - | $ | 2 | $ | 2 | $ | 2 | $ | 2 |
| $ | - |
|
| $ | - |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 2 |
|
| $ | 2 |
| ||||||||||||
Interest Cost | 2 | 2 | 1 | 1 | 3 | 3 |
|
| 2 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
| ||||||||||||||||||
Expected Return on Plan Assets | (2) | (2) | - | - | (2) | (2) |
|
| (2 | ) |
|
| (2 | ) |
|
| - |
|
|
| - |
|
|
| (2 | ) |
|
| (2 | ) | ||||||||||||||||||
Amounts Reclassified from Accumulated Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Amortization of net actuarial (gains) and losses | - | - | (1) | (1) | (1) | (1) |
|
| - |
|
|
| - |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) | ||||||||||||||||||
Curtailment |
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| - |
|
|
| 4 |
|
|
| - |
| ||||||||||||||||||||||||
Total Net Defined Periodic Benefit Cost(1) | $ | - | $ | - | $ | 2 | $ | 2 | $ | 2 | $ | 2 |
| $ | - |
|
| $ | - |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 6 |
|
| $ | 2 |
|
(1) | The components of total net defined periodic benefit cost, excluding the service cost component, are included in other (gains) losses, net. |
21. |
|
The fair values of cash and cash equivalents, accounts receivable and accrued revenues, and accounts payable and accrued liabilities approximate their carrying amounts due to the short-term maturity of those instruments. The fair values of restricted cash and marketable securities included in other assets approximate their carrying amounts due to the nature of the instruments held.
Recurring fair value measurements are performed for risk management assets and liabilities and other derivative contracts, as discussed further in Note 19.22. These items are carried at fair value in the Condensed Consolidated Balance Sheet and are classified within the three levels of the fair value hierarchy in the following tables. There have been no significant transfers between the hierarchy levels during the period.
Fair value changes and settlements for amounts related to risk management assets and liabilities are recognized in revenues transportation and processing expense, and foreign exchange gains and losses according to their purpose.
As at March 31, 2018 | Level 1 Quoted Prices in Active Markets | Level 2 Other | Level 3 Significant Unobservable Inputs | Total Fair Value | Netting (1) | Carrying Amount | ||||||||||||||||||||||||||||||||||||||||||
As at March 31, 2019 |
| Level 1 Quoted Prices in Active Markets |
|
| Level 2 Other Observable Inputs |
|
| Level 3 Significant Unobservable Inputs |
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| Total Fair Value |
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| Netting (1) |
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| Carrying Amount |
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Risk Management Assets |
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Commodity Derivatives: |
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Current assets | $ | - | $ | 267 | $ | - | $ | 267 | $ | (53 | ) | $ | 214 |
| $ | - |
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| $ | 239 |
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| $ | 21 |
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| $ | 260 |
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| $ | (73 | ) |
| $ | 187 |
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Long-term assets | - | 298 | - | 298 | (8 | ) | 290 |
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| - |
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| 130 |
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| - |
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| 130 |
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| (14 | ) |
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| 116 |
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Foreign Currency Derivatives: | ||||||||||||||||||||||||||||||||||||||||||||||||
Current assets | - | 12 | - | 12 | - | 12 | ||||||||||||||||||||||||||||||||||||||||||
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Risk Management Liabilities |
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Commodity Derivatives: |
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Current liabilities | $ | - | $ | 241 | $ | 62 | $ | 303 | $ | (53 | ) | $ | 250 |
| $ | - |
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| $ | 95 |
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| $ | - |
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| $ | 95 |
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| $ | (73 | ) |
| $ | 22 |
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Long-term liabilities | - | 25 | - | 25 | (8 | ) | 17 |
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| - |
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| 33 |
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| 2 |
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| 35 |
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| (14 | ) |
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| 21 |
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Other Derivative Contracts |
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Current in accounts payable and accrued liabilities | $ | - | $ | 5 | $ | - | $ | 5 | $ | - | $ | 5 |
| $ | - |
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| $ | 4 |
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| $ | - |
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| $ | 4 |
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| $ | - |
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| $ | 4 |
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Long-term in other liabilities and provisions | - | 13 | - | 13 | - | 13 |
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| - |
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| 8 |
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| - |
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| 8 |
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| - |
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| 8 |
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(1) | Netting to offset derivative assets and liabilities where the legal right and intention to offset exists, or where counterparty master netting arrangements contain provisions for net settlement. |
Level 2 Other Risk Management Assets Commodity Derivatives: Current assets Long-term assets Foreign Currency Derivatives: Current assets Risk Management Liabilities Commodity Derivatives: Current liabilities Long-term liabilities Foreign Currency Derivatives: Current liabilities Other Derivative Contracts Current in accounts payable and accrued liabilities Long-term in other liabilities and provisionsAs at December 31, 2017 Level 1
Quoted
Prices in
Active
Markets
Observable
Inputs Level 3
Significant
Unobservable
Inputs Total Fair
Value Netting (1) Carrying
Amount $ - $ 189 $ - $ 189 $ (15 ) $ 174 - 248 - 248 (2 ) 246 - 31 - 31 - 31 $ 3 $ 196 $ 51 $ 250 $ (15 ) $ 235 - 15 - 15 (2 ) 13 - 1 - 1 - 1 $ - $ 5 $ - $ 5 $ - $ 5 - 14 - 14 - 14
31 |
As at December 31, 2018 |
| Level 1 Quoted Prices in Active Markets |
|
| Level 2 Other Observable Inputs |
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| Level 3 Significant Unobservable Inputs |
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| Total Fair Value |
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| Netting (1) |
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| Carrying Amount |
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Risk Management Assets |
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Commodity Derivatives: |
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Current assets |
| $ | - |
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| $ | 492 |
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| $ | 139 |
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| $ | 631 |
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| $ | (77 | ) |
| $ | 554 |
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Long-term assets |
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| - |
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| 177 |
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| - |
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| 177 |
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| (16 | ) |
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| 161 |
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Risk Management Liabilities |
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Commodity Derivatives: |
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Current liabilities |
| $ | - |
|
| $ | 81 |
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| $ | - |
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| $ | 81 |
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| $ | (77 | ) |
| $ | 4 |
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Long-term liabilities |
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| - |
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| 38 |
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| - |
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| 38 |
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| (16 | ) |
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| 22 |
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Foreign Currency Derivatives: |
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Current liabilities |
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| - |
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| 21 |
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| - |
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| 21 |
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| - |
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| 21 |
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Other Derivative Contracts |
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Current in accounts payable and accrued liabilities |
| $ | - |
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| $ | 4 |
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| $ | - |
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| $ | 4 |
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| $ | - |
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| $ | 4 |
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Long-term in other liabilities and provisions |
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| - |
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| 10 |
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| - |
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| 10 |
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| - |
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| 10 |
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(1) | Netting to offset derivative assets and liabilities where the legal right and intention to offset exists, or where counterparty master netting arrangements contain provisions for net settlement. |
The Company’s Level 1 and Level 2 risk management assets and liabilities consist of commodity fixed price contracts, fixed price swaptions,NYMEX costless collars, NYMEX call options, foreign currency swaps and basis swaps with terms to 2023. Level 2 also includes financial guarantee contracts as discussed in Note 19.22. The fair values of these contracts are based on a market approach and are estimated using inputs which are either directly or indirectly observable at the reporting date, such as exchange and other published prices, broker quotes and observable trading activity.
Level 3 Fair Value Measurements
As at March 31, 2018,2019, the Company’s Level 3 risk management assets and liabilities consist of WTIthree-way options and WTI costless collars with terms to 2018.2020. The WTIthree-way options are a combination of a sold call, bought put and a sold put. The WTI costless collars are a combination of a sold call and a bought put. These contracts allow the Company to participate in the upside of commodity prices to the ceiling of the call option and provide the Company with complete (collars) or partial(three-way) downside price protection through the put options. The fair values of the WTIthree-way options and WTI costless collars are based on the income approach and are modelled using observable and unobservable inputs such as implied volatility. The unobservable inputs are obtained from third parties whenever possible and reviewed by the Company for reasonableness.
A summary of changes in Level 3 fair value measurements for the three months ended March 31 is presented below:
Risk Management |
| Risk Management |
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2018 | 2017 |
| 2019 |
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| 2018 |
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Balance, Beginning of Year | $ | (51) | $ (36) |
| $ | 139 |
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| $ | (51 | ) | |||||||||||||||
Total Gains (Losses) | 6 | 41 |
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| (100 | ) |
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| (28 | ) | ||||||||||||||||
Purchases, Sales, Issuances and Settlements: |
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Purchases, sales and issuances | - | - |
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| - |
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| - |
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Settlements | (17) | - |
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| (20 | ) |
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| 17 |
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Transfers Out of Level 3(1) | - | - |
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| - |
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| - |
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Balance, End of Period | $ | (62) | $ 5 |
| $ | 19 |
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| $ | (62 | ) | |||||||||||||||
Change in Unrealized Gains (Losses) Related to Assets and Liabilities Held at End of Period | $ | (24) | $ 40 |
| $ | (80 | ) |
| $ | (24 | ) | |||||||||||||||
(1) The Company’s policy is to recognize transfers out of Level 3 on the date of the event of change in circumstances that caused the transfer. | ||||||||||||||||||||||||||
Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below:
| ||||||||||||||||||||||||||
As at | As at | |||||||||||||||||||||||||
March 31, | December 31, | |||||||||||||||||||||||||
Valuation Technique | Unobservable Input | 2018 | 2017 | |||||||||||||||||||||||
Risk Management - WTI Options | Option Model | Implied Volatility | 24% - 83% | 17% - 76% |
(1) | The Company’s policy is to recognize transfers out of Level 3 on the date of the event of change in circumstances that caused the transfer. |
32 |
Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below:
Valuation Technique | Unobservable Input | As at March 31, 2019 | As at December 31, 2018 | ||||||||
Risk Management - WTI Options | Option Model | Implied Volatility | 16% - 52% | 29% - 73% |
A 10 percent increase or decrease in implied volatility for the WTI options would cause aan approximate corresponding $1$5 million ($26 million as at December 31, 2017)2018) increase or decrease to net risk management assets and liabilities.
22. |
|
A) Financial Instruments
Encana’s financial assets and liabilities are recognized in cash and cash equivalents, accounts receivable and accrued revenues, restricted cash, other assets, accounts payable and accrued liabilities, risk management assets and liabilities, long-term debt, and other liabilities and provisions.
B) Risk Management Activities
Encana uses derivative financial instruments to manage its exposure to cash flow variability from commodity prices and fluctuating foreign currency exchange rates. The Company does not apply hedge accounting to any of its derivative financial instruments. As a result, gains and losses from changes in the fair value are recognized in net earnings.
Commodity Price Risk
Commodity price risk arises from the effect that fluctuations in future commodity prices may have on future cash flows. To partially mitigate exposure to commodity price risk, the Company has entered into various derivative financial instruments. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors. The Company’s policy is to not use derivative financial instruments for speculative purposes.
Crude Oil and NGLs - To partially mitigate crude oil and NGL commodity price risk, the Company usesWTI-based contracts such as fixed price contracts, fixed price swaptions, options and costless collars. Encana has also entered into basis swaps to manage against widening price differentials between various production areas and benchmark price points.
Natural Gas - To partially mitigate natural gas commodity price risk, the Company uses NYMEX-based contracts such as fixed price contracts, fixed price swaptionsoptions and options.costless collars. Encana has also entered into basis swaps to manage against widening price differentials between various production areas and benchmark price points.
Foreign Exchange Risk
Foreign exchange risk arises from changes in foreign currency exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. To partially mitigate the effect of foreign exchange fluctuations on future commodity revenues and expenses, the Company may enter into foreign currency derivative contracts. As at March 31, 2018,2019, Encana has entered into $538$750 million notional U.S. dollar denominated currency swaps at an average exchange rate of US$0.76060.7516 to C$1, which mature monthly through the remainder of 2018.2019.
33 |
Risk Management Positions as at March 31, 20182019
| Notional Volumes |
| Term |
| Average Price |
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| Fair Value |
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Notional Volumes | Term | Average Price | Fair Value |
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Crude Oil and NGL Contracts | US$/bbl |
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Fixed Price Contracts |
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WTI Fixed Price | 94.3 Mbbls/d | 2018 | 55.53 | $ | (194 | ) |
| 35.0 Mbbls/d |
| 2019 |
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| 60.31 |
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| $ | - |
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WTI Fixed Price | 15.0 Mbbls/d | 2019 | 58.30 | (2 | ) | |||||||||||||||||||||
WTI Fixed Price Swaptions(1) | 24.0 Mbbls/d | Q1 - Q2 2019 | 63.13 | (16 | ) | |||||||||||||||||||||
Propane Fixed Price |
| 7.8 Mbbls/d |
| 2019 |
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| 35.72 |
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| 17 |
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Butane Fixed Price |
| 6.5 Mbbls/d |
| 2019 |
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| 40.54 |
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| 14 |
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Ethane Fixed Price |
| 5.3 Mbbls/d |
| 2019 |
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| 17.23 |
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| 10 |
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WTIThree-Way Options |
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Sold call / bought put / sold put | 16.0 Mbbls/d | 2018 | 54.49 / 47.17 / 36.88 | (42 | ) |
| 60.8 Mbbls/d |
| 2019 |
| 68.74 / 58.96 / 48.15 |
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| 24 |
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Sold call / bought put / sold put |
| 18.0 Mbbls/d |
| 2020 |
| 65.77 / 55.00 / 45.00 |
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WTI Costless Collars |
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Sold call / bought put | 10.0 Mbbls/d | 2018 | 57.08 / 45.00 | (20 | ) |
| 10.0 Mbbls/d |
| 2019 |
| 64.37 / 55.00 |
|
|
| (1 | ) | ||||||||||
Basis Contracts(2)
|
| 2018 - 2020
|
|
| 26
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Basis Contracts (1) |
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| 2019 |
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| (24 | ) | ||||||||||||||
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| 2020 |
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| (18 | ) | ||||||||||||||
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Crude Oil and NGLs Fair Value Position | (248 | ) |
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| 18 |
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Natural Gas Contracts | US$/Mcf |
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Fixed Price Contracts |
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NYMEX Fixed Price | 1,007 MMcf/d | 2018 | 3.02 | 52 |
| 892 MMcf/d |
| 2019 |
|
| 2.75 |
|
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| (8 | ) | ||||||||||
NYMEX Fixed Price |
| 220 MMcf/d |
| 2020 |
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| 2.76 |
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| 1 |
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NYMEX Fixed Price Swaptions(3) | 300 MMcf/d | Q1 - Q2 2019 | 2.99 | (9 | ) | |||||||||||||||||||||
NYMEX Costless Collars |
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Sold call / bought put |
| 66 MMcf/d |
| 2019 |
| 3.06 / 2.91 |
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| 2 |
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NYMEX Call Options |
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Sold call price | 230 MMcf/d | 2018 | 3.75 | (1 | ) |
| 230 MMcf/d |
| 2019 |
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| 3.75 |
|
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| (1 | ) | |||||||||
Sold call price | 64 MMcf/d | 2019 | 3.75 | (4 | ) | |||||||||||||||||||||
Bought call price |
| 230 MMcf/d |
| 2019 |
|
| 3.75 |
|
|
| (2 | ) | ||||||||||||||
Sold call price | 166 MMcf/d | 2020 | 3.25 | (1 | ) |
| 230 MMcf/d |
| 2020 |
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| 3.25 |
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| - |
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Basis Contracts(4) | 2018 | 130 | ||||||||||||||||||||||||
Basis Contracts (2) |
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| 2019 |
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| 129 |
| ||||||||||||||
2019 | 136 |
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| 2020 |
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| 105 |
| |||||||||||||
2020 | 99 |
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| 2021 |
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| 8 |
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2021 - 2023 | 86 |
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| 2022 - 2023 |
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| 13 |
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Premiums Received on Unexpired Options
|
| (3
| )
| |||||||||||||||||||||||
Natural Gas Fair Value Position | 485 |
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| 247 |
| |||||||||||||
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Net Premiums Received on Unexpired Options |
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| (5 | ) | ||||||||||||||
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Other Derivative Contracts |
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Fair Value Position | (18 | ) |
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| (12 | ) | ||||||||||||
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Foreign Currency Contracts |
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Fair Value Position(5) | 2018 | 12 | ||||||||||||||||||||||||
Total Fair Value Position | $ | 231 | ||||||||||||||||||||||||
Fair Value Position (3) |
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|
| 2019 |
|
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|
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| - |
| ||||||||||||||
Total Fair Value Position and Net Premiums Received |
|
|
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|
| $ | 248 |
|
(1) |
|
(2) | Encana has entered into swaps to protect against |
|
|
(3) | Encana has entered into U.S. dollar denominatedfixed-for-floating average currency swaps to protect against fluctuations between the Canadian and U.S. dollars. |
34 |
Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions
|
| Three Months Ended |
| |||||||||||||
| March 31, |
| ||||||||||||||
Three Months Ended March 31, |
| 2019 |
|
| 2018 |
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2018 | 2017 |
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| |||||||
Realized Gains (Losses) on Risk Management |
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| ||||||||
Commodity and Other Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Revenues(1) | $ | (32 | ) | $ | (24 | ) |
| $ | 72 |
|
| $ | (32 | ) | ||
Transportation and processing | - | (4 | ) | |||||||||||||
Foreign Currency Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Foreign exchange | 7 | 1 |
|
| - |
|
|
| 7 |
| ||||||
$ | (25 | ) | $ | (27 | ) |
| $ | 72 |
|
| $ | (25 | ) | |||
|
|
|
|
|
|
|
| |||||||||
Unrealized Gains (Losses) on Risk Management |
|
|
|
|
|
|
|
| ||||||||
Commodity and Other Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Revenues(2) | $ | 68 | $ | 362 |
| $ | (427 | ) |
| $ | 68 |
| ||||
Foreign Currency Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Foreign exchange | (18 | ) | 2 |
|
| 20 |
|
|
| (18 | ) | |||||
$ | 50 | $ | 364 |
| $ | (407 | ) |
| $ | 50 |
| |||||
|
|
|
|
|
|
|
| |||||||||
Total Realized and Unrealized Gains (Losses) on Risk Management, net |
|
|
|
|
|
|
|
| ||||||||
Commodity and Other Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Revenues(1) (2) | $ | 36 | $ | 338 |
| $ | (355 | ) |
| $ | 36 |
| ||||
Transportation and processing | - | (4 | ) | |||||||||||||
Foreign Currency Derivatives: |
|
|
|
|
|
|
|
| ||||||||
Foreign exchange | (11 | ) | 3 |
|
| 20 |
|
|
| (11 | ) | |||||
$ | 25 | $ | 337 |
| $ | (335 | ) |
| $ | 25 |
|
(1) | Includes a realized gain of |
(2) | Includes an unrealized gain (loss) of nil |
Reconciliation of Unrealized Risk Management Positions from January 1 to March 31
2018 | 2017 | |||||||||||
Fair Value | Total Unrealized | Total Unrealized | ||||||||||
Fair Value of Contracts, Beginning of Year | $ | 183 | ||||||||||
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered into During the Period | 25 | $ | 25 | $ | 337 | |||||||
Settlement of Other Derivative Contracts | 1 | |||||||||||
Fair Value of Contracts Realized During the Period | 25 | 25 | 27 | |||||||||
Fair Value of Contracts Outstanding | $ | 234 | $ | 50 | $ | 364 | ||||||
Premiums Received on Unexpired Options | (3 | ) | ||||||||||
Fair Value of Contracts and Premiums Received, End of Period | $ | 231 |
|
|
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
| Fair Value |
|
| Total Unrealized Gain (Loss) |
|
| Total Unrealized Gain (Loss) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Contracts, Beginning of Year |
|
|
| $ | 654 |
|
|
|
|
|
|
|
|
|
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered into During the Period |
|
|
|
| (335 | ) |
| $ | (335 | ) |
| $ | 25 |
|
Settlement of Other Derivative Contracts |
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
Amortization of Option Premiums During the Period |
|
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
Fair Value of Contracts Realized During the Period |
|
|
|
| (72 | ) |
|
| (72 | ) |
|
| 25 |
|
Fair Value of Contracts and Net Premiums Received, End of Period |
|
|
| $ | 248 |
|
| $ | (407 | ) |
| $ | 50 |
|
Risk management assets and liabilities arise from the use of derivative financial instruments and are measured at fair value. See Note 1821 for a discussion of fair value measurements.
35 |
Unrealized Risk Management Positions
|
| As at |
|
| As at |
| ||||||||||
|
| March 31, |
|
| December 31, |
| ||||||||||
| 2019 |
|
| 2018 |
| |||||||||||
As at March 31, 2018 | As at December 31, 2017 |
|
|
|
|
|
|
|
| |||||||
Risk Management Assets |
|
|
|
|
|
|
|
| ||||||||
Current | $ | 226 | $ | 205 |
| $ | 187 |
|
| $ | 554 |
| ||||
Long-term | 290 | 246 |
|
| 116 |
|
|
| 161 |
| ||||||
516 | 451 |
|
| 303 |
|
|
| 715 |
| |||||||
|
|
|
|
|
|
|
| |||||||||
Risk Management Liabilities |
|
|
|
|
|
|
|
| ||||||||
Current | 250 | 236 |
|
| 22 |
|
|
| 25 |
| ||||||
Long-term | 17 | 13 |
|
| 21 |
|
|
| 22 |
| ||||||
267 | 249 |
|
| 43 |
|
|
| 47 |
| |||||||
|
|
|
|
|
|
|
| |||||||||
Other Derivative Contracts |
|
|
|
|
|
|
|
| ||||||||
Current in accounts payable and accrued liabilities | 5 | 5 |
|
| 4 |
|
|
| 4 |
| ||||||
Long-term in other liabilities and provisions | 13 | 14 |
|
| 8 |
|
|
| 10 |
| ||||||
Net Risk Management Assets (Liabilities) and Other Derivative Contracts | $ | 231 | $ | 183 |
| $ | 248 |
|
| $ | 654 |
|
C) Credit Risk
Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. While exchange-traded contracts are subject to nominal credit risk due to the financial safeguards established by the New York Stock ExchangeNYSE and the TSX,over-the-counter traded contracts expose Encana to counterparty credit risk. This credit risk exposure is mitigated through the use of credit policies approved by the Board of Directors governing the Company’s credit portfolio including credit practices that limit transactions according to counterparties’ credit quality. Mitigation strategies may include master netting arrangements, requesting collateral and/or transacting credit derivatives. The Company executes commodity derivative financial instruments under master agreements that have netting provisions that provide for offsetting payables against receivables. As a result of netting provisions, the Company’s maximum exposure to loss under derivative financial instruments due to credit risk is limited to the net amounts due from the counterparties under the derivative contracts, as disclosed in Note 18.21. As at March 31, 2018,2019, the Company had no significant credit derivatives in place and held no collateral.
As at March 31, 2018,2019, cash equivalents include high-grade, short-term securities, placed primarily with financial institutions and companies with strong investment grade ratings. Any foreign currency agreements entered into are with major financial institutions that have investment grade credit ratings.
A substantial portion of the Company’s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. As at March 31, 2018,2019, approximately 9390 percent (92(97 percent as at December 31, 2017)2018) of Encana’s accounts receivable and financial derivative credit exposures were with investment grade counterparties.
As at March 31, 2018,2019, Encana had two counterparties whose net settlement position individually accounted for more than 10 percent of the fair value of the outstandingin-the-money net risk management contracts by counterparty. As at March 31, 2018, theseThese counterparties accounted for 5350 percent and 1113 percent of the fair value of the outstandingin-the-money net risk management contracts. As at December 31, 2017,2018, Encana had threefour counterparties whose net settlement position accounted for 5630 percent, 1113 percent, 12 percent and 1110 percent of the fair value of the outstandingin-the-money net risk management contracts.
During 2015 and 2017, Encana entered into agreements resulting from divestitures, which may require Encana to fulfill certain payment obligations on the take or pay volume commitments assumed by the purchasers. The circumstances that would require Encana to perform under the agreements include events where a purchaser fails to make payment to the guaranteed party and/or a purchaser is subject to an insolvency event. The agreements have remaining terms from threetwo to sixfive years with a fair value recognized of $18$12 million as at March 31, 20182019 ($1914 million as at December 31, 2017)2018). The maximum potential amount of undiscounted future payments is $317$203 million as at March 31, 2018,2019, and is considered unlikely.
|
23. | Supplementary Information |
Supplemental disclosures to the Condensed Consolidated Statement of Cash Flows are presented below:
A) | Net Change inNon-Cash Working Capital |
| Three Months Ended |
| ||||||||||||||
Three Months Ended March 31, |
| March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Operating Activities |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable and accrued revenues | $ | (2 | ) | $ | 70 |
| $ | 174 |
|
| $ | (2 | ) | |||
Accounts payable and accrued liabilities | (7 | ) | (134 | ) |
|
| (88 | ) |
|
| (7 | ) | ||||
Current portion of operating lease liabilities |
|
| 67 |
|
|
| - |
| ||||||||
Income tax receivable and payable | 1 | (96 | ) |
|
| (35 | ) |
|
| 1 |
| |||||
$ | (8 | ) | $ | (160 | ) |
| $ | 118 |
|
| $ | (8 | ) |
B) | Non-Cash Activities |
| Three Months Ended |
| ||||||||||||||
Three Months Ended March 31, |
| March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||
Non-Cash Investing Activities |
|
|
|
|
|
|
|
| ||||||||
Asset retirement obligation incurred (See Note 12) | $ | 5 | $ | 3 | ||||||||||||
Asset retirement obligation incurred (See Note 14) |
| $ | 3 |
|
| $ | 5 |
| ||||||||
Property, plant and equipment accruals | 9 | �� 44 |
|
| 82 |
|
|
| 9 |
| ||||||
Capitalized long-term incentives | (36 | ) | 11 |
|
| (29 | ) |
|
| (36 | ) | |||||
Property additions/dispositions (swaps) | 49 | 6 |
|
| 2 |
|
|
| 49 |
| ||||||
Non-Cash Financing Activities |
|
|
|
|
|
|
|
| ||||||||
Common shares issued under dividend reinvestment plan (See Note 13) | $ | - | $ | - | ||||||||||||
Common shares issued in conjunction with the Newfield business combination (See Note 8) |
| $ | (3,478 | ) |
| $ | - |
| ||||||||
Common shares issued under dividend reinvestment plan (See Note 15) |
|
| - |
|
|
| - |
|
37 |
| Commitments and Contingencies |
Commitments
The following table outlines the Company’s commitments as at March 31, 2018:2019:
Expected Future Payments |
| Expected Future Payments |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
(undiscounted) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total |
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| Thereafter |
|
| Total |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Transportation and Processing | $ | 446 | $ | 692 | $ | 663 | $ | 579 | $ | 551 | $ | 2,458 | $ | 5,389 |
| $ | 588 |
|
| $ | 727 |
|
| $ | 614 |
|
| $ | 585 |
|
| $ | 480 |
|
| $ | 2,362 |
|
| $ | 5,356 |
| ||||||||||||||
Drilling and Field Services | 165 | 46 | 24 | 9 | - | - | 244 |
|
| 111 |
|
|
| 25 |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 143 |
| |||||||||||||||||||||
Operating Leases | 13 | 16 | 16 | 15 | 15 | 46 | 121 | |||||||||||||||||||||||||||||||||||||||||||||||||
Building Leases |
|
| 12 |
|
|
| 13 |
|
|
| 14 |
|
|
| 8 |
|
|
| 6 |
|
|
| 15 |
|
|
| 68 |
| ||||||||||||||||||||||||||||
Total | $ | 624 | $ | 754 | $ | 703 | $ | 603 | $ | 566 | $ | 2,504 | $ | 5,754 |
| $ | 711 |
|
| $ | 765 |
|
| $ | 635 |
|
| $ | 593 |
|
| $ | 486 |
|
| $ | 2,377 |
|
| $ | 5,567 |
|
Associated with the adoption of Topic 842, all operating leases were recognized on the Condensed Consolidated Balance Sheet. Accordingly, operating leases with terms greater than one year are not included in the commitments table above. The table above includes short-term leases with contract terms less than 12 months, such as drilling rigs and field office leases, as well as non-lease operating cost components associated with building leases. See Notes 2 and 11 for additional disclosures on leases.
Included within transportation and processing in the table above are certain commitments associated with midstream service agreements with VMLP as described in Note 15.17. Divestiture transactions can reduce certain commitments disclosed above.
Contingencies
Encana is involved in various legal claims and actions arising in the normal course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Encana’s financial position, cash flows or results of operations. Management’s assessment of these matters may change in the future as certain of these matters are in early stages or are subject to a number of uncertainties. For material matters that the Company believes an unfavourable outcome is reasonably possible, the Company discloses the nature and a range of potential exposures. If an unfavourable outcome were to occur, there exists the possibility of a material impact on the Company’s consolidated net earnings or loss for the period in which the effect becomes reasonably estimable. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. Such accruals are based on the Company’s information known about the matters, estimates of the outcomes of such matters and experience in handling similar matters.
In conjunction with the acquisition of Newfield as described in Note 8, various legal claims and actions arising in the normal course of Newfield’s operations were assumed by Encana. On March 29, 2019, Newfield and its wholly-owned subsidiary entered into an Agreement and Mutual Release with Sapura Energy Berhad, formerly known as SapuraKencana Petroleum Berhad, and Sapura Exploration and Production Inc., formerly known as SapuraKencana Energy Inc. (collectively, “Sapura”) to settle arbitration claims arising from Sapura’s purchase of Newfield’s Malaysian business in February 2014. Under the Agreement and Mutual Release, Newfield and its wholly-owned subsidiary agreed to pay Sapura $22.5 million. The settlement amount including legal fees has been included in the purchase price allocation as part of the current liabilities assumed by Encana at the acquisition date. Although the outcome of any remaining legal claims and actions assumed by Encana following the acquisition of Newfield cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Encana’s financial position, cash flows or results of operations.
38 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The MD&A is intended to provide a narrative description of Encana’s business from management’s perspective. This MD&A should be read in conjunction with the unaudited interim Condensed Consolidated Financial Statements and accompanying notes for the period ended March 31, 20182019 (“Consolidated Financial Statements”), which are included in Part I, Item 1 of this Quarterly Report on Form10-Q and the audited Consolidated Financial Statements and accompanying notes and MD&A for the year ended December 31, 2017,2018, which are included in Items 8 and 7, respectively, of the 20172018 Annual Report on Form10-K. Common industry terms and abbreviations are used throughout this MD&A and are defined in the Definitions, Conversions and Conventions sections of this Quarterly Report on Form10-Q. This MD&A includes the following sections:
Executive Overview
Strategy
Encana is a leading North American energy producer that is focused on developing its multi-basin portfolio of oil, NGLs and natural gas producing plays. Encana is committed to growing long-term shareholder value through a disciplined focus on generating profitable growth. The Company is pursuing the key business objectives of preserving balance sheet strength, exercising a disciplined capital allocation strategy by investing in a limited number of core assets, growingmaximizing profitability through operational and capital efficiencies, returning capital to shareholders through sustainable dividends and share buybacks, and investing in high margin liquids volumes, maximizing profitability through operating efficiencies and reducing costs, and preserving balance sheet strength.plays to drive cash flow.
In executing its strategy, Encana focuses on its core values of One, Agile and Driven, which guide the organization to be flexible, responsive, determined and motivated with a commitment to excellence and a passion to succeed as a unified team. Encana rapidly deploys successful ideas and practices across its assets, becoming more efficient as innovative and sustainable technical improvements are implemented.
Encana continually reviews and evaluates its strategy and changing market conditions. In 2018,2019, Encana continues to focusis focusing on quality cash flow growth from high margin, scalable, projectstop tier assets located in some of the best plays in North America, referred to as the “Core Assets”, comprising Montney. As at March 31, 2019, these comprised Permian and Duvernay in Canada and Eagle Ford and PermianAnadarko in the U.S., and Montney in Canada. These world-classtop tier assets form a multi-basin portfolio of oil, NGL and natural gas producing plays enabling flexible and efficient investment of capital.capital into high margin liquids plays that support sustainable cash flow generation. The Company rapidly deploys successful ideasCompany’s other upstream assets, including Duvernay, Eagle Ford, Williston and practices across these assets, becoming more efficient as innovative and sustainable technical improvements are implemented.Uinta, continue to deliver a steady cash flow stream for the Company.
For additional information on Encana’s strategy, its reporting segments and the plays in which the Company operates as at December 31, 2018, refer to Items 1 and 2 of the 20172018 Annual Report on Form10-K. On February 13, 2019, Encana completed the acquisition of Newfield; as such, the post-acquisition results of operations of Newfield are included in the Company’s interim consolidated results beginning February 14, 2019. As a result of the Newfield business combination, the China Operations acquired forms a new reporting segment, which has been included in the Results of Operations section of this MD&A. For additional information on the business combination and segmented results, refer to Notes 8 and 3, respectively, to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. For additional information on the reserves volumes acquired with the Newfield acquisition, refer to Exhibit 99.4 in the Company’s Current Report on Form 8-K filed on February 28, 2019 regarding Supplemental Pro Forma Oil, Natural Gas Liquids and Natural Gas Reserves Information as of December 31, 2018.
39 |
In evaluating its operations and assessing its leverage, the Company reviews performance-based measures such asNon-GAAP Non‑GAAP Cash Flow, andNon-GAAP Cash Flow Margin, Total Costs and debt-based metrics such as Debt to Adjusted Capitalization and Net Debt to Adjusted EBITDA, which arenon-GAAP measures and do not have any standardized meaning under U.S. GAAP. These measures may not be similar to measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. Further information regarding these measures, including reconciliations to the closest GAAP measure, can be found in theNon-GAAP Measures section of this MD&A.
Highlights
During the first quarter of 2018,2019, Encana focused on executing its 20182019 capital plan, maintaining operational efficiencies achievedgenerating cash from operating activities and returning capital to shareholders through dividends and share buybacks. In conjunction with the completion of the Newfield acquisition in 2017February, the Company was also focused on integrating the businesses and minimizingis confident it will achieve the effect of inflationary costs.synergies previously announced from the strategic combination. Higher oil and NGL benchmark prices duringupstream product revenues in the first quarter of 20182019 compared to 2017 contributed to increases in Encana’s2018 resulted from higher production volumes, partially offset by lower average realized oilliquids prices. Total production volumes increased by 44 percent compared to 2018 primarily due to the Newfield acquisition and NGLsuccessful drilling programs. The increase was partially offset by lower average realized liquids prices of 2818 percent, primarily due to lower NGL and 21 percent, respectively, resulting in higher revenues.oil benchmark prices. Encana is also focused on optimizing realized prices from the diversification of the Company’s downstream markets to capture higher realized prices. Encana remains committed to delivering a business model that allows the Company to adapt to fluctuating commodity prices.markets.
Significant Developments
| • | Completed the acquisition of all issued and outstanding shares of common stock of Newfield whereby Encana issued approximately 543.4 million common shares on February 13, 2019. Newfield’s operations are focused on the development of oil-rich properties primarily located in the Anadarko Basin in Oklahoma. Following the acquisition, Newfield’s senior notes totaling $2.45 billion remain outstanding. |
• | Received approval from the TSX to purchase |
Financial Results
|