The Oklahoman—Everyone loves it when a plan works. In Encana’s case, its $7.7 billion acquisition of Newfield Exploration in February has performed better than expected so far, its top executive recently said.
“We are seven months in, and we have beaten everything we set out to do our first year,” Encana CEO Doug Suttles told The Oklahoman last week.
Suttles was in Oklahoma City to introduce Encana to attendees at the Petroleum Alliance of Oklahoma’s Wildcatters luncheon.
Suttles said Encana opted to acquire Newfield for two primary reasons — Newfield’s quality of rock and Encana’s ability to execute its efficient development.
Newfield’s talented team of employees, Suttles said, had done a great job in building a quality position in the STACK play of the Anadarko Basin.
Encana, meanwhile, had drilled and completed more unconventional, horizontal wells than nearly every other operator in the world.
“If it doesn’t involve horizontal wells and multistage completions, we don’t do it,” he said.
And as Encana has moved from targeting natural gas to oil and condensate, it has gained experience in nearly every major unconventional play in North America, he said.
“We have a model for developing an asset at scale based on efficiencies that we created and refined on wells in various other basins and that we think works really well,” he said.
Encana, he said, strives for operational efficiencies across all of its operational areas that include western Canada, the Eagle Ford Shale and Permian Basin.
He said the company takes lessons it has learned in various fields and shares those across all of its operational areas.
In the Permian, for example, Suttles said the company produces as much oil daily using about four rigs as comparable operators can maintain using 10.
He said Encana has driven down drilling and completion times on an average well there from 24 to 11 days.
Suttles said Encana quickly saw ways it could apply improved operational practices to the Anadarko assets it picked up as part of Newfield to take significant costs out of drilling and completing wells.
Almost immediately, the company was trimming $1.5 million in drilling and completion costs from every well it installed in the STACK and lately has achieved $2 million in per-well savings on some.
Newfield, he observed, was the play’s top producer in 2018, and Suttles said he expects Encana will hold that spot this year.
“So, not only has it worked, it has worked better and faster than we had predicted,” he said.
Suttles said the oil and gas industry has transformed the past decades because of geopolitical forces and technology.
For him, the business is a family one that started in the 1930s with his grandfather working for Sun Ray and Sun Ray DX in the Permian Basin. His father who worked for Sun Oil in Oklahoma City, among other places.
Suttles, a 1978 graduate of Putnam City High School, went to work for Exxon out of college, helping to develop the Anadarko Basin’s deep gas field and oil reserves in southern Oklahoma.
The most recent transformation, he agreed, has been the technological revolution that unlocked oil, condensate and natural gas from shale, moving the U.S. from a net importer of oil to being a net exporter.
A decade ago, oil and gas companies were working hard to capture that opportunity by building positions in the Permian, the Eagle Ford, the Anadarko and other basins.
But the past few years, that effort turned to developing those positions. As that has evolved, climbing domestic oil production has more than satisfied a growth in the global demand for the resource, keeping its commodity price range bound into the foreseeable future.
Plus, Suttles observed the shale revolution has created an incredible amount of new wealth within the country.
He said a two-section well in the Anadarko Basin during a typical life cycle generates about $20 million in royalty payments to mineral owners and about $6.5 million in severance taxes.
Plus, it requires employees to fill good, well-paying jobs.
It also, however, reshaped what the industry must accomplish has to do to prosper and thrive, Suttles said.
“Investors aren’t betting on oil prices any more” as a hedge against inflation, he observed, adding they weigh their investments these days on how well companies are operated, the strength of their balance sheets, free cash flows and dividends.
That makes it hard for smaller producers to access capital, “and that is what has been driving this consolidation trend the past 12 months,” he said.
For oil and gas companies, “it is about efficient exploitation, how you balance your growth with bringing in more money than you spend. To do that, a lot of things have to happen, including efficiencies, and scale is part of the winning way.”
Suttles said Encana expects it will use between five and eight drilling rigs in Oklahoma going forward, aiming to establish a stable program that drives growth.
“We will remain disciplined about our use of capital,” he said, adding, “when you do that well, you can thrive.
“We are putting a lot of focus here, while other people are taking stuff out,” Suttles said. “We see it as a great opportunity.”