(Adds details and comments. Changes dateline, previous TORONTO. In U.S. dollars unless noted)
By Scott Haggett
CALGARY, Alberta, Dec 12 (Reuters) - EnCana Corp (ECA.TO) said on Wednesday it will raise overall oil and gas production by 5 percent in 2008 and increase capital spending by 13 percent to $6.9 billion, as well as doubling its annual dividend to $1.60 a share.
The company, Canada’s biggest oil and gas producer, also said it will focus its operations to boost U.S. gas production, and expedite oil sands development.
EnCana expects natural gas output to jump 7 percent next year as it pumps cash into fields in Wyoming and East Texas, boosting output there by a fourth. Canadian gas production will sag an expected 4 percent as it cuts spending on its Canadian conventional operations.
“Some of our Canadian plays have become less competitive...compared to the rest of our portfolio,” Randy Eresman, EnCana’s chief executive, said at a company-sponsored investor event.
Canadian costs have been hit by a rising Canadian dollar, higher labor and drilling costs, property tax hikes and the government of Alberta’s decision earlier this year to boost its royalties from oil and gas producers beginning in 2009.
Those factors have convinced some other Canadian producers, including Canadian Natural Resources Ltd (CNQ.TO) and Nexen Inc NXY.TO, to cut their spending plans for 2008.
Andrew Potter, an analyst at UBS Securities, said in a research note that EnCana’s plans to boost capital expenditures “is in stark contrast to its Canadian peers, who have been reducing spending, and speaks to the quality and depth of (EnCana’s) portfolio”.
Eresman said the Canadian dollar’s rise to parity with its U.S. counterpart will increase costs by about $300 million next year.
To counter the Alberta royalty hike, the company said it will spend $500 million less in the province than it would have otherwise.
EnCana expects gas output to rise to an average 3.78 billion cubic feet a day in 2008, with U.S. production rising 25 percent to 1.66 billion cubic feet per day, while its Canadian operations will produce 2.12 bcf per day, a 4 percent decline.
Oil and liquids production outside its oil sands operations will decline 8 percent to 98,000 barrels per day as Canadian output is projected to drop 11 percent to 85,000 bpd.
EnCana will double spending on its oil sands operations, much of which are in a start-up production and refining joint venture with ConocoPhillips (COP.N), to $1.2 billion this year.
About half of that investment will go to an expansion of ConocoPhillips’s Wood River, Illinois, refinery. The partners are boosting overall capacity at the refinery by 55,000 barrels per day and adding coker units to process 65,000 bpd of tar-like bitumen from the oil sands.
Production from EnCana’s oil sands properties is forecast to climb about a fourth next year to 34,000 barrels a day.
EnCana said its total production next year will rise 5 percent to the equivalent of 4.57 billion million cubic feet per day.
EnCana forecast cash flow in a range of $8 billion to $8.8 billion, compared with $8.2 billion to $8.3 billion in 2007. Cash flow per share is seen in a range of between $10.70 and $11.75, up from the 2007 range of between $10.75 and $10.85.
EnCana said the dividend increases will boost the yield to about 2.4 percent at the current share price.
Eresman said the dividend rate topped the payouts of its peers, a bellwether the company said it expects to continue.
“That’s a space that we think...we should be in,” Eresman said. “We would hope to be able to provide continuing dividend increases in the years to come.” ($1=$1.01 Canadian) (Additional reporting by Scott Anderson in Toronto, and Emily Chasan in New York; Editing by Peter Galloway)