The following excerpt is from the company's
SEC filing.
(unaudited)
For the period ended September 30, 2015
(U.S. Dollars)
Third quarter report
for the period ended September 30, 2015
Condensed Consolidated Statement of Earnings
Three Months Ended
Nine Months Ended
($ millions, except per share amounts)
2014
Revenues, Net of Royalties
(Note 3)
1,312
5,765
Expenses
Production and mineral taxes
Transportation and processing
1,149
Operating
Purchased product
Depreciation, depletion and amortization
< br>1,294
Impairments
(Note 9)
1,671
Accretion of asset retirement obligation
(Note 12)
Administrative
(Note 17)
Interest
(Note 6)
Foreign exchange (gain) loss, net
(Note 7)
(Gain) loss on divestitures
(Notes 5, 15)
(3,239
(3,442)
3,143
(1,295
10,424
1,471
Net Earnings (Loss) Before Income Tax
(1,831)
(7,033
4,294
Income tax expense (recovery)
(Note 8)
(2,480
1,066
(1,236)
(4,553
3,228
Net earnings attributable to noncontrolling interest
(Note 15)
Net Earnings (Loss) Attributable to Common Shareholders
(1,236)
2,807
(4,553
3,194
Net Earnings (Loss) per Common Share
Basic & Diluted
(Note 13)
(1.47)
4.31
Condensed Consolidated Statement of Comprehensive Income
($ millions)
(4,553)
Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustment
(Note 14)
Pension and other post-employment benefit plans
(Notes 14, 19)
(1,060)
(3,951)
3,192
Comprehensive Income Attributable
to Noncontrolling Interest
Comprehensive Income (Loss) Attributable to Common
Shareholders
3,158
See accompanying Notes to Condensed Consolidated Financial
Statements
Encana Corporation
Prepared in accordance with U.S. GAAP in US$
Condensed Consolidated Balance Sheet
As at
December 31,
Assets
Current Assets
Cash and cash equivalents
Accounts receivable and accrued revenues
1,307
Risk management
(Note 21)
Income tax receivable
Deferred income taxes
1,871
2,861
Property, Plant and Equipment, at cost:
(Note 9)
Natural gas and oil properties, based on full cost
accounting
Proved properties
41,453
42,615
Unproved properties
5,734
6,133
2,292
2,711
Property, plant and equipment
49,479
51,459
Less: Accumulated depreciation, depletion and amortization
(37,997)
(33,444)
Property, plant and equipment, net
(Note 3)
11,482
18,015
Cash in Reserve
Other Assets
Risk Management
(Note 21)
Deferred Income Taxes
Goodwill
(Notes 3, 4, 5, 15)
2,812
2,917
(Note 3)
17,294
24,621
Liabilities and Shareholders Equity
Current Liabilities
Accounts payable and accrued liabilities
1,535
2,243
Income tax payable
1,594
2,406
Long-Term Debt
(Note 10)
6,128
7,340
Other Liabilities and Provisions
(Note 11)
2,067
2,484
Asset Retirement Obligation
(Note 12)
1,829
10,575
14,936
Commitments and Contingencies
(Note 22)
Share capital - authorized unlimited common shares, without par
value
2015 issued and outstanding: 845.7 million shares (2014: 741.2
million shares)
(Note 13)
3,601
2,450
Paid in surplus
(Note 15)
1,358
Retained earnings
5,188
Accumulated other comprehensive income
(Note 14)
1,291
Total Shareholders Equity
6,719
9,685
17,294
Condensed Consolidated Statement of Changes in Shareholders
Equity
Nine Months Ended September 30, 2015
($ millions)
Capital
Paid in
Surplus
Controlling
Balance, December 31, 2014
5,188
9,685
Dividends on Common Shares
Common Shares Issued
Common Shares Issued Under
Dividend Reinvestment Plan
Balance, September 30, 2015
3,601
1,358
1,291
Nine Months Ended September 30, 2014
($ millions)
Balance, December 31, 2013
Share-Based Compensation
(Note 18)
Sale of Noncontrolling Interest
Distributions to Noncontrolling
Interest Owners
Sale of Investment in PrairieSky
Balance, September 30, 2014
Condensed Consolidated Statement of Cash Flows
Operating Activities
Net earnings (loss)
2,831
$ 3,228
(Note 8)
(2,442
Unrealized (gain) loss on risk management
Unrealized foreign exchange (gain) loss
Foreign exchange on settlements
Net change in other assets and liabilities
Net change in non-cash working capital
Cash From (Used in) Operating Activities
2,406
Investing Activities
Capital expenditures
(1,952
(1,669)
Acquisitions
(Note 5)
(2,975)
Proceeds from divestitures
4,354
Proceeds from sale of investment in PrairieSky
2,172
Cash in reserve
(101)
Net change in investments and other
Cash From (Used in) Investing Activities
1,870
Financing Activities
Net issuance (repayment) of revolving long-term debt
Repayment of long-term debt
(1,302
(1,002)
Issuance of common shares
Dividends on common shares
(152)
Proceeds from sale of noncontrolling interest
1,463
Distributions to noncontrolling interest owners
Capital lease payments and other financing arrangements
Cash From (Used in) Financing Activities
Foreign Exchange Gain (Loss) on Cash and Cash
Equivalents Held in Foreign Currency
Increase (Decrease) in Cash and Cash Equivalents
4,408
Cash and Cash Equivalents, Beginning of Period
2,566
Cash and Cash Equivalents, End of Period
$ 6,974
Cash, End of Period
$ 172
6,802
$ 6,974
Notes to Condensed Consolidated Financial Statements
(All amounts in $ millions unless otherwise specified)
1. Basis of Presentation and Principles of Consolidation
Encana Corporation and its subsidiaries (Encana or the Company)
are in the business of the exploration for, the development of, and
the production and marketing of natural gas, oil and natural gas
liquids (NGLs). The term liquids is used to represent Encanas oil,
NGLs and condensate.
The interim Condensed Consolidated Financial Statements include
the accounts of Encana and are presented in accordance with
accounting principles generally accepted in the United States (U.S.
GAAP).
The interim Condensed Consolidated Financial Statements include
the accounts of Encana and entities in which it holds a controlling
interest. The noncontrolling interest represented the third party
equity ownership in a former consolidated subsidiary, PrairieSky
Royalty Ltd. (PrairieSky), as presented in the Condensed
Consolidated Statement of Changes in Shareholders Equity. See Note
15 for further details regarding the noncontrolling interest. All
intercompany balances and transactions are eliminated on
consolidation. Undivided interests in natural gas and oil
exploration and production joint ventures and partnerships are
consolidated on a proportionate basis. Investments in
non-controlled entities over which Encana has the ability to
exercise significant influence are accounted for using the equity
method.
The interim Condensed 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, 2014, except as noted below in Note
2. 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 Condensed 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, 2014.
These unaudited interim Condensed Consolidated Financial
Statements reflect, in the opinion of Management, all normal and
recurring adjustments necessary to present fairly the financial
position and results of the Company as at and for the periods
presented. Interim condensed consolidated financial results are not
necessarily indicative of consolidated financial results expected
for the fiscal year.
2. Recent Accounting Pronouncements
Changes in Accounting Policies and Practices
On January 1, 2015, Encana adopted Accounting Standards Update
(ASU) 2014-08, Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity as issued by the Financial
Accounting Standards Board (FASB). The update amends the criteria
and expands the disclosures for reporting discontinued operations.
Under the new criteria, only disposals representing a strategic
shift in operations would qualify as a discontinued operation. The
amendments have been applied prospectively and have not had a
material impact on the Companys interim Condensed Consolidated
Financial Statements.
for the period ended September 30, 2015
(All amounts in $ millions unless otherwise specified)
(continued)
New Standards Issued Not Yet Adopted
As of January 1, 2016, Encana will be required to adopt the
following pronouncements issued by the FASB:
ASU 2014-12, Compensation - Stock Compensation: Accounting for
Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved After the Requisite Service
Period. The update requires that a performance target that affects
vesting and could be achieved after the requisite service period be
treated as a performance condition. The amendments will be applied
prospectively and are not expected to have a material impact on the
Companys Consolidated Financial Statements.
ASU 2015-02, Amendments to the Consolidation Analysis. The
update requires limited partnerships and similar entities to be
evaluated under the variable interest and voting interest models,
eliminate the presumption that a general partner should consolidate
a limited partnership, and simplify the identification of variable
interests and related effect on the primary beneficiary criterion
when fees are paid to a decision maker. The amendments can be
applied using either a full retrospective approach or a modified
retrospective approach at the date of adoption. Encana is currently
assessing the potential impact of the amendments on the Companys
Consolidated Financial Statements.
ASU 2015-03, Simplifying the Presentation of Debt Issuance
Costs. The update requires debt issuance costs to be presented on
the balance sheet as a deduction from the carrying amount of the
related liability. Previously, debt issuance costs were presented
as a deferred charge within assets. In August 2015, the FASB issued
ASU 2015-15, Presentation and Subsequent Measurement of Debt
Issuance Costs Associated with Line-of-Credit Arrangements. The
update further clarifies that regardless of whether there are
outstanding borrowings, debt issuance costs arising from credit
arrangements can be presented as an asset and subsequently
amortized ratably over the term of the arrangement. These
amendments will be applied retrospectively. As at September 30,
2015, $31 million of debt issuance costs were presented in Other
Assets on the Companys interim Condensed Consolidated Balance Sheet
($39 million as at December 31, 2014).
As of January 1, 2018, Encana will be required to adopt ASU
2014-09, Revenue from Contracts with Customers under Topic 606,
which was the result of a joint project by the FASB and
International Accounting Standards Board. The new standard replaces
Topic 605, Revenue Recognition, and other industry-specific
guidance in the Accounting Standards Codification. The new standard
is based on the principle that revenue is recognized on the
transfer of promised goods or services to customers in an amount
that reflects the consideration the Company expects to be entitled
to in exchange for those goods or services. In August 2015, the
FASB issued ASU 2015-14, Deferral of Effective Date for Revenue
from Contracts with Customers, which deferred the effective date of
ASU 2014-09, but permits early adoption using the original
effective date of January 1, 2017. The standard can be applied
using one of two retrospective application methods at the date of
adoption. Encana is currently assessing the potential impact of the
standard on the Companys Consolidated Financial Statements.
3. Segmented Information
Encanas reportable segments are determined based on the Companys
operations and geographic locations as follows:
Canadian Operations
includes the exploration for, development of, and production of
natural gas, oil and NGLs and other related activities within the
Canadian cost centre.
USA Operations
includes the exploration for, development of, and production of
natural gas, oil and NGLs and other related activities within the
U.S. cost centre.
Market Optimization
is primarily responsible for the sale of the Companys
proprietary production. These results are reported in the Canadian
and USA Operations. Market optimization activities include third
party purchases and sales of product to provide operational
flexibility for transportation commitments, product type, delivery
points and customer diversification. These activities are reflected
in the Market Optimization segment. Market Optimization sells
substantially all of the Companys upstream production to third
party customers. Transactions between segments are based on market
values and are eliminated on consolidation.
Corporate and Other mainly includes unrealized gains or losses
recorded on derivative financial instruments. Once the instruments
are settled, the realized gains and losses are recorded in the
reporting segment to which the derivative instruments relate.
Notes to Condensed Consolidated Financial Statements
Results of Operations (For the three months ended September
30)
Segment and Geographic Information
Canadian Operations
USA Operations
Market Optimization
2014
$ 759
$ 780
$ 486
166
505
Depreciation, depletion and amortization
279
136
$ 311
(1,605
$ 226
$ 1
Corporate & Other
Consolidated
Revenues, Net of Royalties
$ 260
1,312
$ 2,285
Production and mineral taxes
Transportation and processing
Purchased product
251
1,234
$ 220
(1,307
Accretion of asset retirement obligation
Foreign exchange (gain) loss, net
(Gain) loss on divestitures
(3,239)
(2,822)
3,580
Income tax expense (recovery)
2,831
Net Earnings (Loss) Attributable to Common Shareholders
$ 2,807
Intersegment Information
Marketing Sales
Upstream Eliminations
Total
$ 1,732
$ (1,246)
(108)
1,600
(1,126)
Operating Cash Flow
$ 9
$ (8)
Results of Operations (For the nine months ended September
30)
USA Operations
Market Optimization
2015
2015
$ 1,410
$ 2,706
$ 1,872
$ 2,131
293
$ 890
454
506
418
249
1,805
928
1,292
902
694
5,668
$ 547
$ 1,302
$ (5,642)
$ 598
$ 5
$ (184)
$ 38
$ 5,765
(205)
3,118
$ (278)
$ (81)
(5,368
1,824
(2,470)
$ 3,194
Market Optimization
Marketing Sales
$ 3,345
$ 5,740
$ (3,052)
$ (4,850)
(261)
(358)
(22)
3,051
5,303
(2,791)
(4,459)
$ 5
$ 20
$ (11)
Capital Expenditures
Corporate & Other
473
1,952
1,669
Goodwill, Property, Plant and Equipment and Total Assets by
Segment
Property, Plant and Equipment
Total Assets
13,817
11,351
16,800
4. Business Combinations
Eagle Ford Acquisition
On June 20, 2014, Encana completed the acquisition of properties
located in the Eagle Ford shale formation for approximately $2.9
billion, after closing adjustments. The acquisition included an
interest in certain producing properties and undeveloped lands in
the Karnes, Wilson and Atascosa counties of south Texas. Encana
funded the acquisition with cash on hand. Transaction costs of
approximately $9 million were included in other expenses.
Athlon Energy Inc. Acquisition
On November 13, 2014, Encana completed the acquisition of all of
the issued and outstanding shares of common stock of Athlon Energy
Inc. (Athlon) for $5.93 billion, or $58.50 per share. In addition,
Encana assumed Athlons $1.15 billion senior notes and repaid and
terminated Athlons credit facility with indebtedness outstanding of
$335 million. Encana funded the acquisition of Athlon with cash on
hand. Transaction costs of approximately $31 million were included
in other expenses. Following completion of the acquisition, Athlons
$1.15 billion senior notes were redeemed in accordance with the
provisions of the governing indentures. Athlons operations focused
on the acquisition and development of oil and gas properties
located in the Permian Basin in Texas.
4. Business Combinations
Purchase Price Allocations
The transactions were accounted for under the acquisition
method, which requires that the assets acquired and liabilities
assumed be recognized at their fair values as of the acquisition
date. The purchase price allocations, representing consideration
paid and the fair values of the assets acquired and liabilities
assumed as of the acquisition date, are shown in the table
below.
Purchase Price Allocation
Eagle Ford
Athlon
Assets Acquired:
2
Accounts receivable and other current assets
Other property, plant and equipment
Other assets
Liabilities Assumed:
Long-term debt, including revolving credit facility
(1,497
Asset retirement obligation
(1,724
Total Purchase Price
2,923
5,964
The purchase price allocation for Eagle Ford is finalized.
The purchase price allocation for Athlon is preliminary. There
were no changes during the nine months ended September 30,
2015.
The purchase price includes cash consideration paid for issued
and outstanding shares of common stock of Athlon of $58.50 per
share totaling $5.93 billion, as well as payments to terminate
certain employment agreements with Athlons management and payments
for certain other existing obligations of Athlon.
The Company used the income approach valuation technique for the
fair value of assets acquired and liabilities assumed. The carrying
amounts of cash, accounts receivable and other current assets, and
accounts payable and accrued liabilities approximate their fair
values due to the short-term maturity of the instruments. The fair
values of the risk management assets and long-term debt, including
the revolving credit facility, are categorized within Level 2 of
the fair value hierarchy and were determined using quoted prices
and rates from an available pricing source. The fair values of the
proved and unproved properties, other property, plant and
equipment, other assets, goodwill, and asset retirement obligation
are categorized within Level 3 and were determined using relevant
market assumptions, including discount rates, future commodity
prices and costs, timing of development activities, projections of
oil and gas reserves, and estimates to abandon and reclaim
producing wells.
Goodwill arose from the Athlon acquisition primarily from the
requirement to recognize deferred taxes on the difference between
the fair value of the assets acquired and liabilities assumed and
the respective carry-over tax basis. Goodwill is not amortized and
is not deductible for tax purposes.
Pro Forma Financial Information
The following unaudited pro forma financial information combines
the historical financial results of Encana with Eagle Ford and
Athlon, and has been prepared assuming the acquisitions occurred on
January 1, 2014. The pro forma information is not intended to
reflect the actual results of operations that would have occurred
if the business combinations had been completed at the date
indicated. In addition, the pro forma information does not project
Encanas results of operations for any future period. The Companys
consolidated results for the nine months ended September 30, 2015
include the results from Eagle Ford and Athlon.
Eagle Ford
$ 6,506
$ 6,188
Net Earnings Attributable to Common Shareholders
$ 3,445
$ 3,258
Net Earnings per Common Share
Basic & Diluted
$ 4.65
$ 4.40
5. Acquisitions and Divestitures
2015
2014
$ 1
Total Acquisitions
(56)
(1,729
(935)
(1,850
(43)
(127)
(2,270
(53)
Total Divestitures
(99)
(2,036
(1,115)
(4,354
Net Acquisitions & (Divestitures)
$ (99)
(2,007
$ (1,077)
(1,379
During the nine months ended September 30, 2014, acquisitions
primarily included the purchase of certain properties in the Eagle
Ford shale formation in south Texas as described in Note 4.
For the three and nine months ended September 30, 2015,
divestitures in the Canadian Operations were $56 million and $935
million, respectively. Divestitures primarily reflect the sale of
certain assets included in Wheatland located in central and
southern Alberta for proceeds of approximately C$558 million ($468
million), after closing adjustments, the sale of certain natural
gas gathering and compression assets in the Montney area of
northeastern British Columbia for proceeds of approximately C$453
million ($357 million), after closing adjustments, and the sale of
land and properties that do...
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