Encana generates second quarter cash flow of US$1.2 billion, or $1.65 per share

CALGARY, Alberta--(BUSINESS WIRE)--Encana Corporation (TSX, NYSE: ECA) delivered strong operating performance and solid financial results in the second quarter of 2010. Cash flow was $1.2 billion, or $1.65 per share, and operating earnings were $81 million, or 11 cents per share. Encana's favourable commodity price hedges contributed $263 million in realized after-tax gains, or 36 cents per share, to cash flow. Total production in the second quarter was approximately 3.3 billion cubic feet of gas equivalent per day (Bcfe/d). Second quarter natural gas production per share increased 12 percent compared to the second quarter of 2009 on a pro forma basis.

Strong operating performance boosts 2010 production forecast, capital investment increased by $500 million
Encana continued to deliver strong operating performance in the second quarter, with current daily production already higher than the company's full-year 2010 average daily production guidance. Given the strong performance of key resource plays this year, Encana has increased its 2010 production guidance by 65 million cubic feet of gas equivalent per day (MMcfe/d) to 3.365 Bcfe/d. To accelerate long-term growth projects and build productive capacity of the company's vast North American natural gas portfolio for 2011, Encana is increasing capital investment by $500 million to approximately $5 billion in 2010.

Optimization through gas factories holds additional promise for cost improvement, 2010 operating costs trimmed
"Our production is ahead of target and we are gaining ground on costs through continual optimization programs that help us pursue our cornerstone goal of being the industry's lowest-cost producer. To date, 2010 operating costs are tracking about 17 percent below guidance and as a result we have lowered our operating cost guidance by 10 cents to 80 cents per thousand cubic feet of gas equivalent. As we look ahead, we expect to see substantial additional cost savings through expanded use of multi-well gas factories and as we continue to extend the reach of our horizontal wells," said Randy Eresman, Encana's President & Chief Executive Officer.

Haynesville joins key resource plays; Encana captures Michigan shale lands, pursues joint venture with CNPC
In recognition of its very strong production growth and huge resource potential, Encana's Haynesville shale play has been added to the company's list of key resource plays. During the second quarter, Encana also expanded its shale portfolio capturing a significant land position in Michigan's Collingwood shale play and the company is progressing joint-venture negotiations with China National Petroleum Corporation (CNPC), an initiative that holds significant promise for sizable investment in Canada that would help accelerate growth from the company's enormous natural gas resource base.

First half financial performance strong
In the first half of 2010, Encana generated cash flow of $2.4 billion, or $3.22 per share, and operating earnings of $499 million, or 67 cents per share. Net earnings were $972 million, or $1.31 per share.

Second quarter net earnings impacted by unrealized foreign exchange and hedging
Second quarter net earnings, a $505 million loss, illustrate how net earnings can be impacted by unrealized hedging gains or losses and unrealized foreign exchange gains or losses on long-term debt. Second quarter net earnings include unrealized after-tax losses on commodity hedging and non-operating foreign exchange of $340 million and $246 million, respectively. Encana's first quarter 2010 net earnings were $1.48 billion, nearly $2 billion higher than the second quarter. The decrease in quarter-over-quarter earnings was largely driven by a change in unrealized hedging; in the first quarter of 2010, Encana recorded an after-tax gain of $912 million compared to a $340 million after-tax loss in the second quarter.

"We are reporting a loss in second quarter net earnings as a consequence of mark-to-market accounting despite the fact that our price hedges, covering about 60 percent of our production, were almost 50 percent higher than benchmark natural gas prices, and our natural gas production is about 10 percent more than one year ago. That's why we believe cash flow and operating earnings are a far better measure of Encana's financial performance," Eresman said.

Encana continues to manage natural gas price risks with an attractive hedge position on about 55 percent of forecast production for the remainder of 2010. Second quarter operating earnings were down due largely to lower realized gas prices compared to the second quarter of 2009 on a pro forma basis – a year when Encana had very attractive hedges at a price above $9 per thousand cubic feet (Mcf) on about two-thirds of the company's natural gas production.

IMPORTANT NOTE: Pro forma results defined
On November 30, 2009, Encana completed a major corporate reorganization – a split transaction that resulted in the company's transition into a pure-play natural gas company and the spin-off of its Integrated Oil and Canadian Plains assets into Cenovus Energy Inc., an independent, publicly-traded energy company. To provide more useful comparative information, financial and operating results in this news release highlight Encana's 2009 and 2008 results on a pro forma basis, which reflect the company as if the split transaction had been completed prior to those periods. In this pro forma comparative presentation, the results associated with the assets and operations transferred to Cenovus are eliminated from Encana's consolidated results, and adjustments specific to the split transaction are reflected. Encana's actual financial results for the comparative 2009 period are included in Encana's Interim Consolidated Financial Statements. Additional financial information that reconciles the 2009 consolidated and pro forma financial information is included in this news release at the end of the financial statements.

Per share amounts for cash flow and earnings are on a diluted basis. Encana reports in U.S. dollars unless otherwise noted and follows U.S. protocols, which report production, sales and reserves on an after-royalties basis. The company's financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP).

Second Quarter 2010 Highlights

Financial

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  Cash flow of $1.2 billion, or $1.65 per share

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Operating earnings of $81 million, or 11 cents per share

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Net earnings, a loss of $505 million, or 68 cents per share

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Capital investment, excluding acquisitions and divestitures, of $1.1 billion

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Free cash flow of $118 million (Free cash flow is defined in Note 1 on page 7)

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Total production realized average price of $5.74 per thousand cubic feet equivalent (Mcfe), realized natural gas price of $5.50 per Mcf and realized liquids price of $67.05 per barrel (bbl). These prices include realized financial hedges

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At the end of the quarter, debt to capitalization was 32 percent and debt to adjusted EBITDA was 1.6 times

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Paid dividend of 20 cents per share
 

Operating

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Total production was 3.3 Bcfe/d

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Natural gas production was 3.2 billion cubic feet per day (Bcf/d)

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Natural gas liquids (NGLs) and oil production of about 24,000 barrels per day (bbls/d)

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Operating and administrative costs of $1.11 per Mcfe
 

Strategic developments

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Signed a memorandum of understanding with CNPC that outlines a framework to negotiate a potential joint-venture investment in the development of certain lands in Encana's natural gas plays in British Columbia

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Announced accumulation of significant land position of about 250,000 net acres of land in the Collingwood shale play in Michigan

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Drilled exploration well into Encana's new Brent Miller field in Texas that showed promising results, flowing at 32 million cubic feet per day (MMcf/d)

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Divested non-core natural gas and oil assets in North America for approximately $208 million.
 
 

Financial Summary

(for the period ended June 30)

($ millions, except per share amounts)

   

Q2

2010

 

Q2

20091

 

6

months

2010

 

6

months

20091

Cash flow2     1,217   1,430   2,390   2,817
Per share diluted     1.65   1.90   3.22   3.75
Operating earnings2 81 472 499 1,016
Per share diluted     0.11   0.63   0.67   1.35
Earnings Reconciliation Summary
Net earnings (loss)

(505)

92 972 569
Deduct (Add back):
Unrealized hedging gain (loss), after tax (340) (570) 572 (532)
Non-operating foreign exchange gain (loss), after tax     (246)   190   (99)   85

Operating earnings2

81 472 499 1,016
Per share diluted     0.11   0.63   0.67   1.35

1 Q2 and 6 months 2009 represent pro forma results.

2 Cash flow and operating earnings are non-GAAP measures as defined in Note 1 on Page 7.

 
 
Production & Drilling Summary
(for the period ended June 30)

(After royalties)

   

Q2

2010

 

Q2

20091

  % ?  

6 months

2010

 

6 months

20091

  % ?
Natural gas (MMcf/d)     3,202   2,924   + 10   3,162   2,975   + 6
Natural gas production per 1,000 shares (Mcf/d)     4.34   3.89   + 12   4.26   3.96   + 8
NGLs and Oil (Mbbls/d)     24   29   - 17   24   29   - 17
NGLs and Oil production per 1,000 shares (Mcfe/d)     0.19   0.24   - 21   0.19   0.24   - 21
Total production (MMcfe/d)     3,344   3,100   + 8   3,304   3,151   + 5
Total production per 1,000 shares (Mcfe/d)     4.53   4.13   + 10   4.45   4.20   + 6
Total net wells drilled     151   151       599   634    

1 Q2 and 6 months 2009 represent pro forma volumes and drilling.

 

Second quarter natural gas production up 12 percent per share
Total production in the second quarter of 2010 was 3.3 Bcfe/d, up about 10 percent per share from 3.1 Bcfe/d in the second quarter of 2009, on a pro forma basis. Stronger production was primarily due to successful drilling in U.S. key resource plays, and was partially offset by lower volumes of about 150 MMcf/d due to divestitures. Natural gas production was 3.2 Bcf/d compared to 2.9 Bcf/d in the second quarter of 2009, on a pro forma basis. USA Division second quarter production increased 17 percent to 1.9 Bcfe/d, led by very strong growth in the Haynesville shale, where production averaged about 269 MMcfe/d, up from 54 MMcfe/d in the second quarter of 2009. Piceance production grew close to 29 percent to average about 470 MMcfe/d. Canadian Division production averaged about 1.4 Bcfe/d in the second quarter, down about 3 percent largely as a result of divestitures. Production growth remained steady in Cutbank Ridge, Bighorn and the Greater Sierra resource play, which includes the Horn River shale play, where production averaged about 24 MMcfe/d in the second quarter.

Canadian Division capital investment in the second quarter was $490 million, focused mainly on continuing steady growth from across the division. USA Division capital investment was $596 million, with about half directed to land retention drilling that is already delivering strong growth from the Haynesville shale.

Fast-growing Haynesville shale play joins Encana's key resource play list
"In the Haynesville shale, we've had some very exciting results to date, where production is expected to average 325 MMcfe/d this year, and exit the year at about 500 MMcfe/d. With such strong performance, Haynesville has been added to our list of key resource plays – projects that deliver close to 90 percent of the company's production. Our 2010 program is focused on drilling to retain land and we have plenty of opportunities to capture future efficiencies by optimizing our surface and drilling operations. This year, we have one gas factory pilot planned that will see eight wells drilled from a single pad. With careful and continual optimization, we believe that when we are operating in full gas factory mode, we can achieve substantial reductions in our drilling, completion, tie-in and operating costs," Eresman said.

New Brent Miller field in Texas shows promise
"During the second quarter, we drilled a promising well in the new Brent Miller field, a sizable Texas extension of the Haynesville and Mid-Bossier trends. Our well initially flowed at 25 MMcf/d, but when a second wing valve was added, production from the 14,500-foot well increased to 32 MMcf/d. This is a very promising well in this new play where we have about 45,000 net acres across the heart of very prospective lands," Eresman said.

Encana establishes strong land position in Michigan's Collingwood shale
Over the past two years, Encana has assembled a significant land position in a promising new natural gas shale play in Michigan. Encana has acquired about 250,000 net acres of land in the Collingwood shale play. The company's first exploration well delivered encouraging test results, flowing during a 30-day initial production test at about 2.5 MMcf/d, including natural gas liquids constituents and condensate. With further drilling, Encana hopes to demonstrate stronger gas rates as the company optimizes well completion practices and proves up liquids-rich potential in some parts of the play.

Production from key North American resource plays

       
   

Average Daily Production (MMcfe/d)

2010

   

20091

   

20081

Key Resource Play    

YTD

 

Q2

 

Q1

   

Full

Year

  Q4   Q3   Q2   Q1    

Full

Year

USA Division                    
Jonah 585 574 595 601 596 549 607 656 635
Piceance 476 470 482 373 389 341 365 397 400
East Texas 403 369 437 324 281 306 304 409 335
Haynesville 232 269 194 71 122 83 54 25 10
Fort Worth 133 123 142 139 126 137 141 152 145
Canadian Division
Greater Sierra 232 247 218 204 182 194 222 221 226
Cutbank Ridge 354 388 319 314 257 326 344 326 300
Bighorn 225 252 197 175 158 171 202 172 189
CBM     313   311   315     316   306   318   330   309     304
Total key resource plays 2,953 3,003 2,899 2,517 2,417 2,425 2,569 2,667 2,544
Other production2     351   341   366     486   414   458   531   536     588
Total production     3,304   3,344   3,265     3,003   2,831   2,883   3,100   3,203     3,132

1 2009 and 2008 represent pro forma results, restated on a MMcfe/d basis.

2 Other – includes natural gas and liquids production outside of key resource plays.

 

Drilling activity in key North American resource plays

       
      Net Wells Drilled
    2010     20091     20081
Key Resource Play    

YTD

 

Q2

 

Q1

   

Full

Year

 

Q4

 

Q3

  Q2   Q1    

Full

Year

USA Division                    
Jonah 59 31 28 108 23 20 30 35 175
Piceance 62 29 33 129 16 25 35 53 328
East Texas 6 3 3 38 8 4 11 15 78
Haynesville 41 21 20 49 18 11 11 9 16
Fort Worth 16 9 7 26 3 1 6 16 83
Canadian Division
Greater Sierra 30 14 16 57 15 17 10 15 106
Cutbank Ridge 33 18 15 71 15 18 18 20 82
Bighorn 25 10 15 69 17 17 14 21 64
CBM     295   -   295     490   174   37   1   278     698
Total key resource plays 567 135 432 1,037 289 150 136 462 1,630
Other wells2     32   16   16     52   5   11   15   21     185
Total wells drilled     599   151   448     1,089   294   161   151   483     1,815

1 2009 and 2008 represent pro forma results.

2 Other – includes wells outside of key resource plays.

 
 
Second quarter Natural gas and Oil prices
     

Q2

2010

 

Q2

20091

 

6

months

2010

 

6

months

20091

Natural gas                  
NYMEX ($/MMBtu)     4.09   3.50   4.69   4.19
Encana realized gas price2 ($/Mcf)     5.50   7.02   5.81   7.12
NGLs and Oil ($/bbl)                  
WTI 77.99 59.79 78.39 51.68

Encana realized liquids price2

    67.05   46.42   67.06   39.69

1 Q2 and 6 months 2009 Encana realized prices represent pro forma results.

2 Realized prices include the impact of financial hedging.

 

Solid operating results in a low price environment
Encana focuses on operating earnings as a better measure of quarter-over-quarter earnings performance because it excludes the variability associated with unrealized hedging gains/losses and non-operating foreign exchange gains/losses. Second quarter operating earnings were $81 million in 2010 compared to $472 million in the same period last year, which is down largely due to a quarter-over-quarter decrease in average realized prices from $7.05 to $5.74 per Mcfe. In the second quarter of 2010, realized after-tax hedging gains were $263 million, down from $686 million in the second quarter of 2009, on a pro forma basis. Also impacting second quarter operating earnings was a $128 million increase in depletion compared to the same quarter last year due to increased production and higher foreign exchange rates.

About 55 percent of natural gas production hedged for remainder of 2010
Encana has hedged approximately 1.9 Bcf/d, about 55 percent of expected 2010 natural gas production, at an average NYMEX price of $6.05 per Mcf as of June 30, 2010. In addition, Encana has hedged approximately 1.2 Bcf/d of expected 2011 natural gas production at an average price of about $6.33 per Mcf and approximately 1.0 Bcf/d of expected 2012 natural gas production at an average price of $6.46 per Mcf. This price hedging strategy helps increase certainty in cash flow to assist Encana's ability to meet its anticipated capital requirements and projected dividends. Encana continually assesses its hedging needs and the opportunities available prior to establishing its capital program for the upcoming year. Risk management positions at June 30, 2010 are presented in Note 14 to the unaudited Interim Consolidated Financial Statements.

Corporate developments

Quarterly dividend of 20 cents per share declared
Encana's Board of Directors has declared a quarterly dividend of 20 cents per share payable on September 30, 2010 to common shareholders of record as of September 15, 2010. Based on the July 20, 2010 closing share price on the New York Stock Exchange of $32.91, this represents an annualized yield of about 2.4 percent.

Guidance updated
Encana has increased its 2010 guidance for total production by 65 MMcfe/d to 3.365 Bcfe/d. Encana has also increased its capital investment guidance by $500 million, taking 2010 capital investment from $4.5 billion to $5.0 billion, and has reduced operating cost guidance by 10 cents to 80 cents per Mcfe. Encana has provided 2010 guidance for a weighted average number of outstanding shares of approximately 740 million. Total cash flow guidance is unchanged. Based on Encana's guidance in 2010 of 740 million shares, the range of cash flow per share has been increased by 10 cents to between $5.95 and $6.50. Encana has also lowered its natural gas price expectation for the remainder of the year to NYMEX $5.00 per Mcf, from $5.75 per Mcf. Updated guidance and key resource play information, which includes the addition of Haynesville to Encana's list of key resource plays, is posted on the company's website at www.encana.com.

Encana and CNPC look to jointly develop Canadian unconventional natural gas
On June 24, 2010 Encana and CNPC signed a memorandum of understanding that outlines a framework for the two companies to negotiate a potential joint-venture investment in the development of certain lands in Encana's natural gas plays in Horn River, Greater Sierra (Jean Marie formation) and Cutbank Ridge (Montney formation) in northeast British Columbia. Under a potential joint venture, Encana would be the operator of all developments, meaning it would drill and complete the wells, build the processing facilities and pipelines and conduct all field work for the joint venture. CNPC would invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge. The companies expect that it will take several months to negotiate a potential joint venture, which would be subject to typical conditions precedent, including the negotiation of acceptable terms and conditions, receipt of the Encana Board of Directors' approval of the final terms of the proposed joint venture and receipt of any necessary regulatory approvals.

Normal Course Issuer Bid
In the second quarter of 2010, Encana purchased for cancellation approximately 5.5 million common shares at an average share price of $32.54 under the company's current Normal Course Issuer Bid for a total cost of approximately $179 million. In the first half of 2010, Encana has purchased for cancellation about 15.4 million common shares at an average share price of $32.42 for a total cost of about $499 million.

Financial strength

Encana has a strong balance sheet, with 100 percent of its outstanding debt composed of long-term, fixed-rate debt with an average remaining term of approximately 13 years. The company has upcoming debt maturities of $200 million in September 2010 and $500 million in 2011. At June 30, 2010, Encana had $4.8 billion in unused committed credit facilities. With Encana's bank facilities undrawn and $1.5 billion of cash and cash equivalents on the balance sheet at the end of the quarter, the company's liquidity position is extremely strong. Encana is focused on maintaining investment grade credit ratings, capital discipline and financial flexibility. Encana targets a debt to capitalization ratio of less than 40 percent and a debt to adjusted EBITDA ratio of less than 2.0 times. At June 30, 2010, the company's debt to capitalization ratio was 32 percent and debt to adjusted EBITDA was 1.6 times, on a trailing 12-month basis, using 2009 pro forma results.

In the second quarter of 2010, Encana invested $1.1 billion in capital, excluding acquisitions and divestitures, with a focus on continued development of the company's key resource plays. Encana invested about $124 million in acquisitions in the second quarter and divested about $208 million of non-core properties.

   

CONFERENCE CALL TODAY

11:00 a.m. Mountain Time (1:00 p.m. Eastern Time)

 

Encana will host a conference call today Wednesday, July 21, 2010 starting at 11:00 a.m. MT (1:00 p.m. ET). To participate, please dial (888) 231-8191 (toll-free in North America) or (647) 427-7450 approximately 10 minutes prior to the conference call. An archived recording of the call will be available from approximately 2:00 p.m. MT on July 21 until midnight July 28, 2010 by dialling (800) 642-1687 or (416) 849-0833 and entering passcode 59169776 followed by the pound (#) sign.

 

A live audio webcast of the conference call will also be available via Encana's website, www.encana.com, under Investors/Presentations & events. The webcast will be archived for approximately 90 days.

 

 

NOTE 1: Non-GAAP measures

This news release contains references to non-GAAP measures as follows:

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  Cash flow is a non-GAAP measure defined as cash from operating activities excluding net change in other assets and liabilities, net change in non-cash working capital from continuing operations and net change in non-cash working capital from discontinued operations, which are defined on the Consolidated Statement of Cash Flows, in this news release and Encana's interim consolidated financial statements.

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Free cash flow is a non-GAAP measure that Encana defines as cash flow in excess of capital investment, excluding net acquisitions and divestitures, and is used to determine the funds available for other investing and/or financing activities.

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Operating earnings is a non-GAAP measure that shows net earnings excluding non-operating items such as the after-tax impacts of a gain/loss on discontinuance, the after-tax gain/loss of unrealized mark-to-market accounting for derivative instruments, the after-tax gain/loss on translation of U.S. dollar denominated debt issued from Canada and the partnership contribution receivable, the after-tax foreign exchange gain/loss on settlement of intercompany transactions, future income tax on foreign exchange recognized for tax purposes only related to U.S. dollar intercompany debt and the effect of changes in statutory income tax rates. Management believes that these excluded items reduce the comparability of the company's underlying financial performance between periods. The majority of the U.S. dollar debt issued from Canada has maturity dates in excess of five years.

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Capitalization is a non-GAAP measure defined as debt plus shareholders' equity. Debt to capitalization and debt to adjusted EBITDA are two ratios that management uses as measures of the company's overall financial strength to steward the company's overall debt position.

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Adjusted EBITDA is a non-GAAP measure defined as net earnings from continuing operations before gains or losses on divestitures, income taxes, foreign exchange gains or losses, interest net, accretion of asset retirement obligation, and depreciation, depletion and amortization.
 

These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding Encana's liquidity and its ability to generate funds to finance its operations.

Encana Corporation
Encana is a leading North American natural gas producer that is focused on growing its strong portfolio of prolific shale and other unconventional natural gas developments, called resource plays, in key basins from northeast British Columbia to east Texas and Louisiana. A pure-play natural gas company, Encana applies advanced technology and operational innovation to reduce costs and maximize margins. The company believes North American natural gas is an abundant, affordable and reliable energy supply that can play a significantly expanded role in serving the continent's growing energy needs while enhancing environmental performance and generating economic growth. By partnering with employees, community organizations and other businesses, Encana contributes to the strength and sustainability of the communities where it operates. Encana common shares trade on the Toronto and New York stock exchanges under the symbol ECA.

ADVISORY REGARDING RESERVES DATA AND OTHER OIL AND GAS INFORMATION – Encana's disclosure of reserves data and other oil and gas information is made in reliance on an exemption granted to Encana by Canadian securities regulatory authorities which permits it to provide certain of such disclosure in accordance with the relevant legal requirements of the U.S. Securities and Exchange Commission (SEC). Some of the information provided by Encana may differ from the corresponding information prepared in accordance with Canadian disclosure standards under National Instrument 51-101 (NI 51-101). Information about the differences between the U.S. requirements and the NI 51-101 requirements is set forth under the heading "Note Regarding Reserves Data and Other Oil and Gas Information" in Encana's Annual Information Form. On March 16, 2010 Encana issued a news release disclosing revised estimates of proved, probable and possible reserves in accordance with the applicable SEC definitions, together with low, best and high estimate economic contingent resources based upon definitions contained in the Canadian Oil and Gas Evaluation Handbook. For further information concerning these reserves and economic contingent resources, including the number of potential drilling locations in respect thereof, please refer to Encana's news release dated March 16, 2010 available at www.encana.com and www.sedar.com.

In this news release, certain crude oil and NGLs volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic feet (Mcf). Cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the well head.

ADVISORY REGARDING FORWARD-LOOKING STATEMENTS - In the interests of providing Encana shareholders and potential investors with information regarding Encana, including management's assessment of Encana's and its subsidiaries' future plans and operations, certain statements contained in this news release are forward-looking statements or information within the meaning of applicable securities legislation, collectively referred to herein as "forward-looking statements." Forward-looking statements in this news release include, but are not limited to: projections contained in the company's guidance forecasts and the anticipated ability to meet the company's guidance forecasts; projected increase in 2010 production guidance and estimated additional capital investment for 2010; expected costs savings through expansion of multi-well gas factories and extension of the reach of horizontal wells; potential of new play in Michigan; the potential completion of a joint venture transaction with China National Petroleum Corporation (CNPC), including the potential terms, timing for completion, and possible effects on operations of the same; potential dividends; anticipated success of Encana's price risk management strategy; potential of exploration well into Brent Miller field in Texas, including expected increase in production in the Haynesville shale; future share buybacks; and projected financial metrics, including maintaining investment grade credit ratings, target debt to capitalization ratio and debt to adjusted EBITDA ratio; projected strategy of not shutting-in or curtailing volumes for 2010 given current forward curve; projected continued decrease in supply costs; and estimated number of years of inventory of drilling locations at current pace of development. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the company's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include, among other things: the risk that the company may not conclude potential joint venture arrangements with CNPC or others; volatility of and assumptions regarding commodity prices; assumptions based upon the company's current guidance; fluctuations in currency and interest rates; product supply and demand; market competition; risks inherent in the company's and its subsidiaries' marketing operations, including credit risks; imprecision of reserves and resources estimates and estimates of recoverable quantities of natural gas and liquids from resource plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities; unexpected cost increases or technical difficulties in constructing or modifying processing facilities; risks associated with technology; the company's ability to replace and expand gas reserves; its ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; the company's ability to secure adequate product transportation; changes in royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations or the interpretations of such laws or regulations; political and economic conditions in the countries in which the company operates; terrorist threats; risks associated with existing and potential future lawsuits and regulatory actions made against the company; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Encana. Although Encana believes that 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 foregoing list of important factors is not exhaustive.

Forward-looking statements with respect to anticipated production, reserves and production growth, including over the next five years, are based upon numerous facts and assumptions which are discussed in further detail in this news release, including a projected capital program averaging approximately $6 billion per year from 2011 to 2014, achieving an average rate of approximately 2,500 net wells per year from 2011 to 2014, Encana's current net drilling location inventory, natural gas price expectations over the next few years, production expectations made in light of advancements in horizontal drilling, multi-stage fracture stimulation and multi-well pad drilling, the current and expected productive characteristics of various existing and emerging resource plays, Encana's estimates of proved, probable and possible reserves and economic contingent resources, expectations for rates of return which may be available at various prices for natural gas and current and expected cost trends. In addition, assumptions relating to such forward-looking statements generally include Encana's current expectations and projections made in light of, and generally consistent with, its historical experience and its perception of historical trends, including the conversion of resources into reserves and production as well as expectations regarding rates of advancement and innovation, generally consistent with and informed by its past experience, all of which are subject to the risk factors identified elsewhere in this news release.

Forward-looking information respecting anticipated 2010 cash flow for Encana is based upon achieving average production of oil and gas for 2010 of approximately 3.365 Bcfe/d, commodity prices for natural gas of NYMEX $5.00/Mcf, crude oil (WTI) $75 for commodity prices and an estimated U.S./Canadian dollar foreign exchange rate of $0.94 and a weighted average number of outstanding shares for Encana of approximately 740 million.

Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release, and, except as required by law, Encana does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Further information on Encana Corporation is available on the company's website, www.encana.com.

 
Consolidated Statement of Earnings (unaudited)
         
Three Months Ended Six Months Ended
June 30,   June 30,
($ millions, except per share amounts)       2010   2009   2010   2009
 
Revenues, Net of Royalties (Note 3) $ 1,469 $ 2,449 $ 5,014 $ 6,131
 
Expenses (Note 3)
Production and mineral taxes 52 32 121 93
Transportation and selling 214 321 425 614
Operating 246 400 506 835
Purchased product 160 338 371 798
Depreciation, depletion and amortization 814 934 1,614 1,866
Administrative 107 114 189 193
Interest, net (Note 6) 131 83 261 141
Accretion of asset retirement obligation (Note 10) 11 18 23 35
Foreign exchange (gain) loss, net (Note 7) 266 (61 ) 122 (3 )
(Gain) loss on divestitures         1       3       -       2  
          2,002       2,182       3,632       4,574  
Net Earnings (Loss) Before Income Tax (533 ) 267 1,382 1,557
Income tax expense (recovery)   (Note 8)     (28 )     56       410       355  
Net Earnings (Loss) From Continuing Operations (505 ) 211 972 1,202
Net Earnings (Loss) From Discontinued Operations   (Note 4)     -       28       -       (1 )
Net Earnings (Loss)       $ (505 )   $ 239     $ 972     $ 1,201  
 
Net Earnings (Loss) From Continuing Operations per Common Share (Note 12)
Basic $ (0.68 ) $ 0.28 $ 1.31 $ 1.60
Diluted       $ (0.68 )   $ 0.28     $ 1.31     $ 1.60  
 
Net Earnings (Loss) per Common Share (Note 12)
Basic $ (0.68 ) $ 0.32 $ 1.31 $ 1.60
Diluted       $ (0.68 )   $ 0.32     $ 1.31     $ 1.60  
 
 
Consolidated Statement of Comprehensive Income (unaudited)
 
Three Months Ended Six Months Ended
June 30,   June 30,
($ millions)       2010   2009   2010   2009
 
Net Earnings (Loss) $ (505 ) $ 239 $ 972 $ 1,201
Other Comprehensive Income (Loss), Net of Tax
Foreign Currency Translation Adjustment         (177 )     916       (18 )     645  
Comprehensive Income (Loss)       $ (682 )   $ 1,155     $ 954     $ 1,846  
 
See accompanying Notes to Consolidated Financial Statements.
 
 
Consolidated Balance Sheet (unaudited)
   
    As at As at
June 30, December 31,
($ millions)           2010     2009
 
Assets
Current Assets
Cash and cash equivalents $ 1,481 $ 4,275
Accounts receivable and accrued revenues 1,157 1,180
Risk management (Note 14) 725 328
Income tax receivable 318 -
Inventories           3     12
3,684 5,795
Property, Plant and Equipment, net (Note 3) 26,510 26,173
Investments and Other Assets 376 164
Risk Management (Note 14) 469 32
Goodwill           1,648     1,663
      (Note 3)   $ 32,687   $ 33,827
 
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 2,001 $ 2,143
Income tax payable - 1,776
Risk management (Note 14) 96 126
Current portion of long-term debt     (Note 9)     200     200
2,297 4,245
Long-Term Debt (Note 9) 7,553 7,568
Other Liabilities (Note 3) 1,400 1,185
Risk Management (Note 14) 16 42
Asset Retirement Obligation (Note 10) 768 787
Future Income Taxes           3,873     3,386
            15,907     17,213
Shareholders' Equity
Share capital (Note 12) 2,319 2,360
Paid in surplus (Note 12) - 6
Retained earnings 13,724 13,493
Accumulated other comprehensive income           737     755
Total Shareholders' Equity           16,780     16,614
          $ 32,687   $ 33,827
 
See accompanying Notes to Consolidated Financial Statements.
 
 
Consolidated Statement of Shareholders' Equity (unaudited)
 
      Six Months Ended
June 30,
($ millions)         2010   2009
 
Share Capital
Balance, Beginning of Year $ 2,360 $ 4,557
Common Shares Issued under Option Plans (Note 12) 5 2
Common Shares Issued from PSU Trust (Note 12) - 19
Stock-Based Compensation (Note 12) 2 1
Common Shares Purchased     (Note 12)     (48 )     -  
Balance, End of Period         $ 2,319     $ 4,579  
 
Paid in Surplus
Balance, Beginning of Year $ 6 $ -
Common Shares Issued from PSU Trust - 6
Common Shares Purchased     (Note 12)     (6 )     -  
Balance, End of Period         $ -     $ 6  
 
Retained Earnings
Balance, Beginning of Year $ 13,493 $ 17,584
Net Earnings 972 1,201
Dividends on Common Shares (296 ) (601 )
Charges for Normal Course Issuer Bid     (Note 12)     (445 )     -  
Balance, End of Period         $ 13,724     $ 18,184  
 
Accumulated Other Comprehensive Income
Balance, Beginning of Year $ 755 $ 833
Foreign Currency Translation Adjustment           (18 )     645  
Balance, End of Period         $ 737     $ 1,478  
Total Shareholders' Equity         $ 16,780     $ 24,247  
 
See accompanying Notes to Consolidated Financial Statements.
 
 
Consolidated Statement of Cash Flows (unaudited)
 
    Three Months Ended   Six Months Ended
June 30,   June 30,
($ millions)       2010   2009   2010   2009
   
Operating Activities
Net earnings (loss) from continuing operations $ (505 ) $ 211 $ 972 $ 1,202
Depreciation, depletion and amortization 814 934 1,614 1,866
Future income taxes (Note 8) 76 (272 ) 502 (212 )
Unrealized (gain) loss on risk management (Note 14) 511 1,118 (852 ) 1,007
Unrealized foreign exchange (gain) loss 242 (69 ) 73 (49 )
Accretion of asset retirement obligation (Note 10) 11 18 23 35
(Gain) loss on divestitures 1 3 - 2
Other 67 94 58 131
Cash flow from discontinued operations - 116 - 115
Net change in other assets and liabilities (38 ) 11 (69 ) 26
Net change in non-cash working capital from continuing operations (286 ) (383 ) (2,200 ) (835 )
Net change in non-cash working capital from discontinued operations         -       180       -       464  
Cash From (Used in) Operating Activities         893       1,961       121       3,752  
 
Investing Activities
Capital expenditures (Note 3) (1,223 ) (913 ) (2,271 ) (2,437 )
Proceeds from divestitures (Note 5) 208 20 354 53
Corporate acquisition - (24 ) - (24 )
Net change in investments and other (94 ) 79 (217 ) 155
Net change in non-cash working capital from continuing operations 36 (181 ) 21 (267 )
Discontinued operations         -       (298 )     -       (581 )
Cash From (Used in) Investing Activities         (1,073 )     (1,317 )     (2,113 )     (3,101 )
 
Financing Activities
Net issuance (repayment) of revolving long-term debt - (1,170 ) - (665 )
Issuance of long-term debt - 496 - 496
Issuance of common shares (Note 12) 1 19 5 21
Purchase of common shares (Note 12) (179 ) - (499 ) -
Dividends on common shares         (147 )     (301 )     (296 )     (601 )
Cash From (Used in) Financing Activities         (325 )     (956 )     (790 )     (749 )
 
Foreign Exchange Gain (Loss) on Cash and Cash
Equivalents Held in Foreign Currency         (8 )     9       (12 )     5  
 
Increase (Decrease) in Cash and Cash Equivalents (513 ) (303 ) (2,794 ) (93 )
Cash and Cash Equivalents, Beginning of Period         1,994       564       4,275       354  
Cash and Cash Equivalents, End of Period       $ 1,481     $ 261     $ 1,481     $ 261  
 
Cash (Bank Overdraft), End of Period $ (26 ) $ (5 ) $ (26 ) $ (5 )
Cash Equivalents, End of Period         1,507       266       1,507       266  
Cash and Cash Equivalents, End of Period       $ 1,481     $ 261     $ 1,481     $ 261  
 
See accompanying Notes to Consolidated Financial Statements.
 
 
Notes to Consolidated Financial Statements (unaudited)
(All amounts in $ millions unless otherwise specified)
 
1. Basis of Presentation
 
The interim Consolidated Financial Statements include the accounts of Encana Corporation and its subsidiaries ("Encana" or the "Company"), and are presented in accordance with Canadian generally accepted accounting principles ("GAAP"). Encana's operations are in the business of the exploration for, the development of, and the production and marketing of natural gas and crude oil and natural gas liquids ("NGLs").
 
The interim 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, 2009, except as noted below. The disclosures provided below are incremental to those included with the annual audited Consolidated Financial Statements. Certain information and disclosures normally required to be included in the notes to the annual audited Consolidated Financial Statements have been condensed or have been disclosed on an annual basis only. Accordingly, the interim 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, 2009.
 
On November 30, 2009, Encana completed a corporate reorganization (the "Split Transaction") to split into two independent publicly traded energy companies - Encana Corporation, a natural gas company, and Cenovus Energy Inc. ("Cenovus"), an integrated oil company.
 
Encana's 2009 comparative results in the Consolidated Statement of Earnings and Consolidated Statement of Cash Flows include Cenovus's upstream operations prior to the November 30, 2009 Split Transaction in continuing operations, while the U.S. Downstream Refining results are reported as discontinued operations.
 
2. Changes in Accounting Policies and Practices
 
On January 1, 2010, Encana adopted the following Canadian Institute of Chartered Accountants ("CICA") Handbook sections:
 

? "Business Combinations", Section 1582, which replaces the previous business combinations standard. The standard requires assets and
  liabilities acquired in a business combination, contingent consideration and certain acquired contingencies to be measured at their fair
  values as of the date of acquisition. In addition, acquisition-related and restructuring costs are to be recognized separately from the
  business combination and included in the statement of earnings. The adoption of this standard will impact the accounting treatment of
  future business combinations entered into after January 1, 2010.

 

? "Consolidated Financial Statements", Section 1601, which, together with Section 1602 below, replace the former consolidated financial
  statements standard. Section 1601 establishes the requirements for the preparation of consolidated financial statements. The adoption
  of this standard had no material impact on Encana's Consolidated Financial Statements.

 

? "Non-controlling Interests", Section 1602, which establishes the accounting for a non-controlling interest in a subsidiary in
  consolidated financial statements subsequent to a business combination. The standard requires a non-controlling interest in
  a subsidiary to be classified as a separate component of equity. In addition, net earnings and components of other comprehensive
  income are attributed to both the parent and non-controlling interest. The adoption of this standard has had no material impact on
  Encana's Consolidated Financial Statements.

 
The above CICA Handbook sections are converged with International Financial Reporting Standards ("IFRS"). Encana will be required to report its results in accordance with IFRS beginning in 2011. The Company is currently assessing the impact of the convergence of Canadian GAAP with IFRS on Encana's financial results of operations, financial position and disclosures.
 
 
3. Segmented Information
 
The Company's operating and reportable segments are as follows:
 

Canada includes the Company's exploration for, and development and production of natural gas, crude oil and NGLs and other related
  activities within the Canadian cost centre.

 

USA includes the Company's exploration for, and development and production of natural gas, NGLs and other related activities within
  the United States cost centre.

 

Market Optimization is primarily responsible for the sale of the Company's proprietary production. These results are included in the
  Canada and USA segments. Market optimization activities include third-party purchases and sales of product that provide operational
  flexibility for transportation commitments, product type, delivery points and customer diversification. These activities are reflected in the
  Market Optimization segment.

 

Corporate and Other mainly includes unrealized gains or losses recorded on derivative financial instruments. Once amounts are settled,
  the realized gains and losses are recorded in the operating segment to which the derivative instrument relates.

 
Market Optimization sells substantially all of the Company's upstream production to third-party customers. Transactions between segments are based on market values and eliminated on consolidation. The tables in this note present financial information on an after eliminations basis.
 
In conjunction with the Split Transaction, the assets formerly included in Encana's Canadian Plains Division and Integrated Oil Division were transferred to Cenovus. As a result, the former Canadian Foothills Division is reported as the Canadian Division and the Canadian Plains Division and Integrated Oil - Canada are now presented as Canada – Other. Prior periods have been restated to reflect this presentation.
 
Encana has a decentralized decision-making and reporting structure. Accordingly, the Company reports its divisional results as follows:
 

Canadian Division, formerly the Canadian Foothills Division, which includes natural gas development and production assets located in
  British Columbia and Alberta, as well as the Deep Panuke natural gas project offshore Nova Scotia. Four key resource plays are located in
  the Division: (i) Greater Sierra in northeast British Columbia, including Horn River; (ii) Cutbank Ridge on the Alberta and British Columbia
  border, including Montney; (iii) Bighorn in west central Alberta; and (iv) Coalbed Methane in southern Alberta.

 

USA Division, which includes the natural gas development and production assets located in the U.S. Five key resource plays are located in
  the Division: (i) Jonah in southwest Wyoming; (ii) Piceance in northwest Colorado; (iii) East Texas in Texas; (iv) Haynesville in Louisiana
  and Texas; and (v) Fort Worth in Texas.

 

Canada - Other includes the combined results from the former Canadian Plains Division and Integrated Oil - Canada.

 
Operations that have been discontinued are disclosed in Note 4.
 
 
Results of Operations (For the three months ended June 30)
 
Segment and Geographic Information
 
    Canada   USA   Market Optimization
    2010   2009   2010   2009   2010   2009
           
Revenues, Net of Royalties $ 724 $ 2,070 $ 1,078 $ 1,126 $ 170 $ 366
Expenses
Production and mineral taxes 4 17 48 15 - -
Transportation and selling 48 196 166 125 - -
Operating 129 291 121 99 5 7
Purchased product     -     (18 )     -       -       160       356  
543 1,584 743 887 5 3
Depreciation, depletion and amortization     313     523       482       379       3       4  
Segment Income (Loss)   $ 230   $ 1,061     $ 261     $ 508     $ 2     $ (1 )
 
                Corporate & Other   Consolidated
                2010   2009   2010   2009
 
Revenues, Net of Royalties $ (503 ) $ (1,113 ) $ 1,469 $ 2,449
Expenses
Production and mineral taxes - - 52 32
Transportation and selling - - 214 321
Operating (9 ) 3 246 400
Purchased product                 -       -       160       338  
(494 ) (1,116 ) 797 1,358
Depreciation, depletion and amortization                 16       28       814       934  
Segment Income (Loss)               $ (510 )   $ (1,144 )     (17 )     424  
Administrative 107 114
Interest, net 131 83
Accretion of asset retirement obligation 11 18
Foreign exchange (gain) loss, net 266 (61 )
(Gain) loss on divestitures                             1       3  
                              516       157  
Net Earnings (Loss) Before Income Tax (533 ) 267
Income tax expense (recovery)                             (28 )     56  
Net Earnings (Loss) from Continuing Operations                           $ (505 )   $ 211  
 
 
Results of Operations (For the three months ended June 30)
 
Product and Divisional Information
 
    Canada Segment
                Canadian Division   Canada - Other   Total
                2010   2009   2010   2009   2010   2009
               
Revenues, Net of Royalties $ 724 $ 907 $ - $ 1,163 $ 724 $ 2,070
Expenses
Production and mineral taxes 4 6 - 11 4 17
Transportation and selling 48 38 - 158 48 196
Operating 129 133 - 158 129 291
Purchased product                 -     -     -     (18 )     -     (18 )
Operating Cash Flow               $ 543   $ 730   $ -   $ 854     $ 543   $ 1,584  
 
    Canadian Division *
    Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ 627 $ 823 $ 79 $ 74 $ 18 $ 10 $ 724 $ 907
Expenses
Production and mineral taxes 3 5 1 1 - - 4 6
Transportation and selling 47 37 1 1 - - 48 38
Operating     123     124     2     6     4     3       129     133  
Operating Cash Flow   $ 454   $ 657   $ 75   $ 66   $ 14   $ 7     $ 543   $ 730  
 
    USA Division
    Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ 983 $ 1,044 $ 65 $ 50 $ 30 $ 32 $ 1,078 $ 1,126
Expenses
Production and mineral taxes 42 11 6 4 - - 48 15
Transportation and selling 166 125 - - - - 166 125
Operating     106     77     -     -     15     22       121     99  
Operating Cash Flow   $ 669   $ 831   $ 59   $ 46   $ 15   $ 10     $ 743   $ 887  
 
    Canada - Other **
    Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ - $ 475 $ - $ 618 $ - $ 70 $ - $ 1,163
Expenses
Production and mineral taxes - 5 - 6 - - - 11
Transportation and selling - 10 - 143 - 5 - 158
Operating - 51 - 93 - 14 - 158
Purchased product     -     -     -     -     -     (18 )     -     (18 )
Operating Cash Flow   $ -   $ 409   $ -   $ 376   $ -   $ 69     $ -   $ 854  
 

* Formerly known as the Canadian Foothills Division.

** Includes the operations formerly known as the Canadian Plains Division and Integrated Oil - Canada.

 
 
Results of Operations (For the six months ended June 30)
 
Segment and Geographic Information
 
    Canada   USA   Market Optimization
    2010   2009   2010   2009   2010   2009
           
Revenues, Net of Royalties $ 1,444 $ 3,953 $ 2,286 $ 2,300 $ 398 $ 858
Expenses
Production and mineral taxes 5 32 116 61 - -
Transportation and selling 93 366 332 248 - -
Operating 268 577 230 214 14 15
Purchased product     -     (31 )     -       -       371     829  
1,078 3,009 1,608 1,777 13 14
Depreciation, depletion and amortization     600     1,007       976       795       6     9  
Segment Income (Loss)   $ 478   $ 2,002     $ 632     $ 982     $ 7   $ 5  
 
                Corporate & Other   Consolidated
                2010   2009   2010   2009
 
Revenues, Net of Royalties $ 886 $ (980 ) $ 5,014 $ 6,131
Expenses
Production and mineral taxes - - 121 93
Transportation and selling - - 425 614
Operating (6 ) 29 506 835
Purchased product                 -       -       371     798  
892 (1,009 ) 3,591 3,791
Depreciation, depletion and amortization                 32       55       1,614     1,866  
Segment Income (Loss)               $ 860     $ (1,064 )     1,977     1,925  
Administrative 189 193
Interest, net 261 141
Accretion of asset retirement obligation 23 35
Foreign exchange (gain) loss, net 122 (3 )
(Gain) loss on divestitures                             -     2  
                              595     368  
Net Earnings Before Income Tax 1,382 1,557
Income tax expense                             410     355  
Net Earnings from Continuing Operations                           $ 972   $ 1,202  
 
 
Results of Operations (For the six months ended June 30)
 
Product and Divisional Information
 
    Canada Segment
                Canadian Division   Canada - Other   Total
                2010   2009   2010   2009   2010   2009
               
Revenues, Net of Royalties $ 1,444 $ 1,822 $ - $ 2,131 $ 1,444 $ 3,953
Expenses
Production and mineral taxes 5 11 - 21 5 32
Transportation and selling 93 75 - 291 93 366
Operating 268 263 - 314 268 577
Purchased product                 -     -     -     (31 )     -     (31 )
Operating Cash Flow               $ 1,078   $ 1,473   $ -   $ 1,536     $ 1,078   $ 3,009  
 
    Canadian Division *
  Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ 1,256 $ 1,671 $ 160 $ 131 $ 28 $ 20 $ 1,444 $ 1,822
Expenses
Production and mineral taxes 4 9 1 2 - - 5 11
Transportation and selling 92 71 1 4 - - 93 75
Operating     253     244     8     12     7     7       268     263  
Operating Cash Flow   $ 907   $ 1,347   $ 150   $ 113   $ 21   $ 13     $ 1,078   $ 1,473  
 
    USA Division
    Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ 2,095 $ 2,162 $ 126 $ 79 $ 65 $ 59 $ 2,286 $ 2,300
Expenses
Production and mineral taxes 104 54 12 7 - - 116 61
Transportation and selling 332 248 - - - - 332 248
Operating     190     159     -     -     40     55       230     214  
Operating Cash Flow   $ 1,469   $ 1,701   $ 114   $ 72   $ 25   $ 4     $ 1,608   $ 1,777  
 
    Canada - Other **
    Gas   Oil & NGLs   Other   Total
    2010   2009   2010   2009   2010   2009   2010   2009
 
Revenues, Net of Royalties $ - $ 996 $ - $ 1,033 $ - $ 102 $ - $ 2,131
Expenses
Production and mineral taxes - 8 - 13 - - - 21
Transportation and selling - 21 - 260 - 10 - 291
Operating - 102 - 184 - 28 - 314
Purchased product     -     -     -     -     -     (31 )     -     (31 )
Operating Cash Flow   $ -   $ 865   $ -   $ 576   $ -   $ 95     $ -   $ 1,536  
 

 * Formerly known as the Canadian Foothills Division.

** Includes the operations formerly known as the Canadian Plains Division and Integrated Oil - Canada.

 
 
Capital Expenditures (Continuing Operations)
 
  Three Months Ended   Six Months Ended
June 30,   June 30,
    2010   2009   2010   2009
   
Capital
Canadian Division $ 490 $ 325 $ 1,033 $ 862
Canada - Other     -     190     -     508  
Canada 490 515 1,033 1,370
USA 596 374 1,068 948
Market Optimization 1 - 1 (3 )
Corporate & Other     12     14     17     33  
      1,099     903     2,119     2,348  
 
Acquisition Capital
Canada 46 2 59 75
USA     78     8     93     14  
      124     10     152     89  
Total   $ 1,223   $ 913   $ 2,271   $ 2,437  
 
Property, Plant and Equipment and Total Assets by Segment
 
Property, Plant and Equipment   Total Assets
As at   As at
June 30, December 31, June 30, December 31,
    2010   2009   2010   2009
 
Canada $ 11,542 $ 11,162 $ 13,102 $ 12,748
USA 13,750 13,929 15,124 14,962
Market Optimization 118 124 168 303
Corporate & Other     1,100     958     4,293     5,814  
Total   $ 26,510   $ 26,173   $ 32,687   $ 33,827  
 
In January 2008, Encana signed the contract for the design and construction of the Production Field Centre ("PFC") for the Deep Panuke project. As at June 30, 2010, Canada Property, Plant, and Equipment and Total Assets includes Encana's accrual to date of $495 million ($427 million at December 31, 2009) related to this offshore facility as an asset under construction.
 
In February 2007, Encana announced that it had entered into a 25 year lease agreement with a third party developer for The Bow office project. As at June 30, 2010, Corporate and Other Property, Plant and Equipment and Total Assets includes Encana's accrual to date of $797 million ($649 million at December 31, 2009) related to this office project as an asset under construction.
 
Corresponding liabilities for these projects are included in Other Liabilities in the Consolidated Balance Sheet. There is no effect on the Company's net earnings or cash flows related to the capitalization of The Bow office project or the Deep Panuke PFC.
 
 
4. Discontinued Operations
 
As a result of the Split Transaction on November 30, 2009, Encana transferred its Downstream Refining operations to Cenovus. These operations have been accounted for as discontinued operations.
 
Consolidated Statement of Earnings
 
The following table presents the effect of discontinued operations in the Consolidated Statement of Earnings:
 
  Three Months Ended   Six Months Ended
June 30,   June 30,
    2010   2009   2010   2009
   
Revenues, Net of Royalties $ - $ 1,313 $ - $ 2,239
 
Expenses
Operating - 112 - 230
Purchased product - 1,047 - 1,796
Depreciation, depletion and amortization - 46 - 97
Administrative - 6 - 12
Interest, net - 46 - 92
Accretion of asset retirement obligation - 1 - 1
Foreign exchange (gain) loss, net - 1 - 1
(Gain) loss on divestitures     -       -       -       -  
      -       1,259       -       2,229  
Net Earnings (Loss) Before Income Tax - 54 - 10
Income tax expense     -       26       -       11  
Net Earnings (Loss) From Discontinued Operations   $ -     $ 28     $ -     $ (1 )
 
Net Earnings (Loss) From Discontinued Operations
per Common Share
Basic $ - $ 0.04 $ - $ -
Diluted   $ -     $ 0.04     $ -     $ -  
 
5. Acquisitions and Divestitures
 
Acquisitions
On May 5, 2009, the Company acquired the common shares of Kerogen Resources Canada, ULC for net cash consideration of $24 million. The acquisition included $37 million of property, plant and equipment and the assumption of $6 million of current liabilities and $7 million of future income taxes. The operations are included in the Canadian Division.
 
Divestitures
Total year-to-date proceeds received on the sale of assets were $354 million (2009 - $53 million). The significant items are described below:
 
Canada and USA
In 2010, the Company completed the divestiture of non-core oil and natural gas assets for proceeds of $29 million (2009 - $44 million) in the Canadian Division and $325 million (2009 - $4 million) in the USA Division.
 
6. Interest, Net
 
Three Months Ended Six Months Ended
June 30,   June 30,
    2010   2009   2010   2009
 
Interest Expense - Long-Term Debt $ 122 $ 123 $ 242 $ 241
Interest Expense - Other 11 4 23 (3 )
Interest Income *     (2 )     (44 )     (4 )     (97 )
    $ 131     $ 83     $ 261     $ 141  
 
* In 2009, Interest Income is primarily due to the Partnership Contribution Receivable which was transferred to Cenovus under the Split Transaction on November 30, 2009.
 
 
7. Foreign Exchange (Gain) Loss, Net
 
  Three Months Ended   Six Months Ended
June 30,   June 30,
    2010   2009   2010   2009
   
Unrealized Foreign Exchange (Gain) Loss on:
Translation of U.S. dollar debt issued from Canada $ 245 $ (439 ) $ 74 $ (289 )
Translation of U.S. dollar partnership contribution receivable

issued from Canada *

- 247 - 160
Other Foreign Exchange (Gain) Loss on:
Monetary revaluations and settlements     21       131       48       126  
    $ 266     $ (61 )   $ 122     $ (3 )
 
* The Partnership Contribution Receivable was transferred to Cenovus under the Split Transaction on November 30, 2009.
 
8. Income Taxes
 
The provision (recovery) for income taxes is as follows:
Three Months Ended Six Months Ended
June 30,   June 30,
    2010   2009   2010   2009
 
Current
Canada $ (112 ) $ 268 $ (102 ) $ 440
United States 6 53 7 121
Other Countries     2       7       3       6  
Total Current Tax     (104 )     328       (92 )     567  
 
Future     76       (272 )     502       (212 )
    $ (28 )   $ 56     $ 410     $ 355  
 
9. Long-Term Debt
 
As at As at
June 30, December 31,
                  2010     2009
 
Canadian Dollar Denominated Debt
Unsecured notes $ 1,179 $ 1,194
 
U.S. Dollar Denominated Debt
Unsecured notes 6,600 6,600
 
Increase in Value of Debt Acquired 49 52
Debt Discounts and Financing Costs (75 ) (78 )
Current Portion of Long-Term Debt                 (200 )     (200 )
                $ 7,553     $ 7,568  
 
 
10. Asset Retirement Obligation
 
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas assets:
 
  As at   As at
June 30, December 31,
      2010     2009
 
Asset Retirement Obligation, Beginning of Year $ 787 $ 1,230
Liabilities Incurred 19 21
Liabilities Settled (10 ) (52 )
Liabilities Divested (45 ) (26 )
Liabilities Transferred to Cenovus - (692 )
Change in Estimated Future Cash Outflows 1 74
Accretion Expense 23 71
Foreign Currency Translation     (7 )     161  
Asset Retirement Obligation, End of Period   $ 768     $ 787  
 
11. Capital Structure
 
The Company's capital structure consists of Shareholders' Equity plus Debt, defined as Long-term Debt including the current portion. The Company's objectives when managing its capital structure are to:
 

   i)  maintain financial flexibility to preserve Encana's access to capital markets and its ability to meet
       its financial obligations; and

  ii)  finance internally generated growth, as well as potential acquisitions.

 
The Company monitors its capital structure and short-term financing requirements using non-GAAP financial metrics consisting of Debt to Capitalization and Debt to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"). These metrics are measures of the Company's overall financial strength and are used to steward the Company's overall debt position.
 

Encana targets a Debt to Capitalization ratio of less than 40 percent. At June 30, 2010, Encana's Debt to Capitalization ratio was 32 percent (December 31, 2009 - 32 percent) calculated as follows:

As at
June 30, December 31,
    2010   2009
 
Debt $ 7,753 $ 7,768
Shareholders' Equity     16,780       16,614  
Capitalization   $ 24,533     $ 24,382  
Debt to Capitalization Ratio     32 %     32 %
 
 
Encana targets a Debt to Adjusted EBITDA of less than 2.0 times. At June 30, 2010, Debt to Adjusted EBITDA was 1.3x (December 31, 2009 - 1.3x) calculated on a trailing 12-month basis as follows:
 
      As at

June 30,

  December 31,
              2010     2009
 
Debt             $ 7,753     $ 7,768  
 
Net Earnings from Continuing Operations $ 1,600 $ 1,830
Add (deduct):
Interest, net 525 405
Income tax expense 164 109
Depreciation, depletion and amortization 3,452 3,704
Accretion of asset retirement obligation 59 71
Foreign exchange (gain) loss, net 103 (22 )
(Gain) loss on divestitures               -       2  
Adjusted EBITDA             $ 5,903     $ 6,099  
Debt to Adjusted EBITDA               1.3x       1.3x  
 
Encana has a long-standing practice of maintaining capital discipline, managing its capital structure and adjusting its capital structure according to market conditions to maintain flexibility while achieving the objectives stated above. To manage the capital structure, the Company may adjust capital spending, adjust dividends paid to shareholders, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt or repay existing debt.
 
The Company's capital management objectives, evaluation measures, definitions and targets have remained unchanged over the periods presented. Encana is subject to certain financial covenants in its credit facility agreements and is in compliance with all financial covenants.
 
12. Share Capital
 

June 30, 2010

  December 31, 2009