For those investors who are still into the dreadfully performing natural gas ETF, UNG, Encana announced today that it will double its natural gas production within 5 years.
The company said it will boost its 2010 capital budget by 20% to $4.5B as it takes step to double production over the next five years, despite low prices for the fuel. The company is ramping up spending to develop its massive shale gas holdings in Western Canada and the United States.
According to BNN, "EnCana's plans will see it pumping more than 6 billion cubic feet of gas per day by the end of 2015, giving it about 8.6 percent of the current North American market, keeping it as one of North America's largest natural gas producers and squeezing out less efficient companies that have higher costs".
"We should be forcing out the higher-cost producers," Randy Eresman, EnCana's chief executive, told reporters. "And we've already been doing that. In the last couple of years there was a lot of natural gas production being developed in North America that required $8, $9, $10 prices in order to be developed."
EnCana expects prices, with the benchmark futures contract currently at about $4.35 per million British thermal units, to average between $6 and $7 per thousand cubic feet long-term. It said it can produce gas for under $4 per mcf. It's also expecting demand for the clean-burning fuel to grow as it supplants coal in power generation and producers lobby for more use of natural gas in transportation.
New uses for gas will be critical to EnCana and its peers as output rises from low-cost shale gas reserves. Gas from shale deposits like the Haynesville in Louisiana, the massive Marcellus region centered in Pennsylvania or the Horn River region of British Columbia is pushing up supplies after years of declining production".
"EnCana will need to spend about $6 billion annually, drilling 2,500 wells a year, in order to meet its revamped targets. The company had, in the past, limited its growth in order to avoid causing higher prices for drilling and other services and Eresman said EnCana will try to not spur higher prices as it ramps up activity, counting on what it calls its "gas factory" strategy to keep a lid on costs".
EnCana said it expects its production at the end of 2010 to be between 3.4 billion and 3.5 billion cubic feet of natural gas per day. That's up from the 3.1 bcf a day it averaged at the end of January".
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