American Oil and Gas Reporter - May 2015 - 54

SpecialReport: Industry Success Strategies
observes. "Activity is down because there
is a big disconnect between seller expectations, which are based on high prices, and
buyer expectations, which are based on
current prices. As prices stabilize, the market will meet somewhere in the middle and
more transactions will take place."
Mariani identifies two other key factors
that will prompt increased acquisition
and divestiture activity in the months
ahead. "First, hedges will begin to roll off
for most exploration, drilling and production companies. Second, with the majority of companies cutting capital spending
40-70 percent this year, production on assets will decline. With fewer hedges and
lower production levels, properties will
support a lower borrowing base. There still
is private equity in the market that could
come into play, but we think many companies will choose to sell assets to create
liquidity."

"Not only are these four plays among
the best in North America, but we are situated in the best acreage within them,"
McAllister says. "They contain the resource base that allows for good margins
even at $50 oil prices and $3 natural gas
prices, with low supply costs and significant running room to build scale and accelerate operational efficiencies. Also,
all four offer good market access."
Encana's asset teams are maximizing
these plays' potential by finding ways to
operate more efficiently, McAllister reports. "We built tremendous momentum
in driving down costs through 2014,
when costs were generally moving in the
opposite direction in the industry," he says.
"This year, we expect to achieve a 15 percent improvement in capital efficiency
through efforts across the company."
Those efforts will include optimizing
everything from drilling and completions
to production, McCallister notes. He says
the improvements are often straightforward, but take legwork to implement.
"For example," he begins, "earlier
this year in the Eagle Ford, we had 2,500
barrels a day shut in as a result of insufficient dehydration capacity. By working
as a team and sharing information with
groups across the company, we were
able to find and move an underutilized de-

Focused Strategy

For Michael McAllister, Encana
Corp.'s executive vice president and chief
operating officer, the key to surviving the
ups and downs in the oil and gas industry
is recognizing that even the clearest crystal ball is shrouded in fog. "As soon as you
predict commodity prices, you quickly are
proven wrong," he suggests.

"I find it exciting to watch our teams rise to
the challenge of making our projects better and
better. They are finding ways to become more
efficient, and then sharing their ideas with
others so their projects can improve as well."

Michael McAllister
"At Encana, we have built a company
that can provide value through any price
cycle," he says. "Like many of our peers,
we are tightening our focus. More than 80
percent of our 2015 capital is focused on
our four most strategic plays: the Montney and Duvernay in Canada, and the Eagle Ford and Permian in Texas.
54 THE AMERICAN OIL & GAS REPORTER

hydration unit from the Piceance Basin in
Colorado to San Antonio and get it running within 10 days."
The company is continuing to work
with its suppliers and service companies
to coordinate activities and increase efficiency, McAllister adds. In combination
with internal efficiency improvements, he

says these efforts have paid off.
To illustrate, McAllister offers the
company's Eagle Ford assets, which it acquired in June 2014. "By the fourth quarter, cycle times from spud to rig release
dropped 25 percent, from 15 days to 11,"
he reports. "Initial 30-day production increased an average of 25 percent per
well and drilling costs dropped 10 percent,
or about $300,000 per well."
McAllister says Encana has achieved
even greater cost reductions in the Duvernay Shale in Alberta, a play that has been
dubbed "Canada's Eagle Ford" because of
its similar geologic framework with oil,
condensate and dry gas windows. Encana
is one of the largest leaseholders in the Duvernay, and its acreage position is concentrated in the oil and condensate windows.
"Through a combination of wellbore design optimization, adopting fit-for-purpose
rigs, and implementing our resource play
hub development model to leverage
economies of scale, we reduced drilling costs
year-over-year by 38 percent," he relates.

Strong Staff
McAllister attributes Encana's success
to the talent and hands-on attitude of its employees. "We are encouraging staff across
the organization to step up and take on roles
to complete key strategic projects and
solve challenges," he notes. "For example,
we have engineers in Calgary filling critical roles with our Permian Basin team."
Such collaborative efforts have two
benefits, McAllister argues. "First, we do
not have to hire and train new staff in one
area while we have underutilized talent in
other areas. And second, it leads to more
efficient sharing of information across the
organization as teams become more integrated."
Information sharing helped the company have its safest year ever in 2014, even
as it adjusted to major acquisitions in the
Eagle Ford and the Permian Basin. Encana
acquired 45,400 net acres in the Karnes
Trough ("the core of the core area") in the
Eagle Ford with more than 400 estimated well locations and 140,000 net acres in
the target-rich Midland Basin with an estimated 5,000 well locations. "To set a
safety record during a year when we experienced a tremendous amount of organizational change is a fantastic achievement by our staff," McAllister says.
"In today's price environment, it would



American Oil and Gas Reporter - May 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2015

Contents
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