Canadian Oil and
Gas
Presented by:
Haosen Liang
Sandy Sanjoto
Alice Liang Yu Tai
Ben Yee
Presentation Overview

Industry Analysis

Imperial Oil

Suncor Energy

Encana Corporation
Agenda

Canada’s Place in the World

Underlying Product

Industry Components

Importance of Technology

SWOT Analysis

Recommendation
Top Ten World Natural Gas
Producers in 2004
Top 10 World Crude Oil Producers
in 2004
Oil and Gas Re-investment Cycle
($ Cdn for 2003-2005)
What is the underlying product?

Fossil sediments


trapped in in the pores of
rocks
Hydrocarbons

CH4 (methane), C3H8
(propane), C4H10 (butane)
 C7H16 through C11H24
(gasoline and diesel)
 Lubricating and Heavy gas oils
Types and Uses

Crude Oil and Natural Gas

Uses:


Products:


Mobility, heat and cool our homes and provide electricity
plastics, life-saving medications, clothing, cosmetics, and many
other items you may use daily
Barrel – a unit of measure for oil and petroleum products
that is equivalent to 42 U.S. gallons ~ 159 Litres
Proven Natural Gas Reserves
Western Canadian Natural Gas
Resources
Canadian Oil Production Outlook
Big Players’ Production
Conventional Oil vs. Oil Sands
Conventional Oil



Petroleum found in liquid form, flowing naturally or capable of
being pumped without further processing or dilution
Light crude oil
Cheaper to produce
Oil Sands  Synthetic Crude Oil



Oil Sands is a thick mixture of sands, bitumen, mineral rich
clays and water
Synthetic crude oil is extracted from oil sands and it is often
sold at a premium because of its high quality
More costly to produce
Types of Crude Oil Produced in
Canada
• Condensates: hydrocarbons recovered from a natural gas reservoir.
• Light crude oil: liquid petroleum with a gravity of 28°API or higher
• Heavy crude oil: liquid petroleum with a gravity below 28°API
• Bitumen: petroleum in semi-solid or solid form that is found in
bituminous sands. It is so heavy (gravity below 12°API) and viscous that
it will not flow unless heated or diluted.
• Synthetic crude oil: a product similar to a high-quality light crude oil. It
is made by refining or upgrading heavy oil or bitumen. From 31-33°API
• Pentanes: hydrocarbons containing molecules of 5 carbon atoms and
12 hydrogen atoms.
Industry Components

Upstream
 Exploration
and Production
 Seismic Survey

Midstream
 Pipeline,

Transportation and Storage
Downstream
 Refining,
Marketing and Retailing
Extraction
1.Natural Gas

Wells are drilled and gas flows under its own pressure
~ 90% methane
 Needs processing to remove impurities
2. Drilling:

Conventional crude oil that is near the surface can
pumped up using traditional techniques
Oil Sands Composition
Synthetic Crude Production
Process
Ore Preparation
 Strip-Mining
 The pick and shovel method used to recover oil sands that are near
surface
 600,000 barrels per day  1.2m barrels per day in 2010
 In Situ
 Includes various methods used to recover deeply buried bitumen
deposits, including steam injection, solvent injection and firefloods
 380,000 barrels per day  700,000 barrels per day in 2010
 More than 80% of the Oil Sands reserve require this method
Extraction
 Separates Bitumen from other molecules
Upgrading
 Processes Bitumen into Synthetic Crude Oil and Vacuum Gas Oil
In-situ Production
SAGD: Steam Assisted
Gravity Drainage


Because of the rising
prices of natural gas, crude
producers are moving
towards using bitumen or
high sulphur fuels to
generate steam
80% of bitumen extraction
relies on this method
Harvesting Bitumen
Oil Refining
1. Fractional Distillation ~ boil and cool
2. Conversion ~ chemicals
3. Treatment ~ impurities
4. Recombination ~ octane ratings
Importance of Technology
Correlation between Oil and
Natural Gas Prices
Oil Sands Production Technologies
Alternates to Natural Gas
Toe-to-Heel Air Injection
Oil Sands Supply Costs by
Recovery Type
Heavy Oil Economics
(US$ per barrel)
Strengths

Canada is the world leader of








Enhanced recovery techniques for mature reservoirs
Cold climate and offshore production
Gas processing, sulphur extraction and heavy oil upgrading
Oil Sands reserve
Development of Oil Sand projects
Integrated with the world’s largest market for energy
consumption, making it less costly to bring the products
to market.
Strong interest from China, the largest market for
energy consumption in the future.
Attractive crown royalty rate for oil sand projects
Weakness - Regulatory Approval
Weaknesses





Limited natural gas reserves
Capacity for natural gas is forecasted to decrease
Canada is one of the high-cost places in the world to find
and produce oil and gas
Deep gas, natural gas from coal and developments
offshore, in the oil sands and the North are large,
complex and expensive and have long lead times before
they turn a profit
Challenges in meeting North America’s energy needs
Opportunities

Exporting to the US

Oils Sands

Exploration of Northern and Eastern Canada

World population is currently around 6 billion people, but
is expected to grow to approximately 7.6 billion by 2020.
- a huge increase in the demand for transportation fuels,
electricity, and many other consumer products made
from oil and natural gas.
Opportunities - Markets

Expanding markets in U.S. and Asia
Threats

Tighter environmental and security regulations

Kyoto Protocol

Limited proven natural gas reserve

Long run viability of oil sands project


It is estimated that crude price has to be above $30 a barrel for
oil sand projects to be profitable because of the high production
costs
Increasing Supply costs
Important Trends

Higher oil sands production/declining conventional oil
production

Share of gas production increasingly coming from sour
and unconventional gas (e.g., coalbed methane)

Average drilling density increasing and competition for
the land base escalating

Average finding and development costs spiraling
upwards

Greater North American market interdependence
Recommended Strategy
Selection Criteria for Long Term Investment

Larger companies with strong financial resources

Companies that have good access to resources and
(potential) markets

Companies that already demonstrate superior cost
structure and lower production costs
Imperial Oil Limited
Agenda

Company Background

Management & Business Strategy

Business Segments

Risks and Challenges

Financial Information by Segments
Agenda (Cont)

Financial Statements

Valuation Ratios

Stock Prices and Charts

Discounted Cash Flow Model

Conclusion & Recommendation
Company Background

Incorporated in 1880 with HQ in Calgary, Alberta

Largest integrated oil company in Canada

Stock Exchanges: AMEX (IMO-A), TSE (IMO-T)

Market Cap: 37.187 Billion (As of March 10, 2006)

Share Price: $111.80 CAD (As of March 10, 2006)
Company Background (Cont)

Proposed three-for-one stock split on Feb 2, 2006

Relationship with Exxon Mobil Corporation
 Exxon
Mobil owns 69.6% of the company
 Abundant access to technologies, leverage, and
research globally
 Imperial Oil and Exxon Mobil have agreed to operate
their Western Canada production together as of April 1,
2005
Management & Business Strategy

T.J. (Tim) Hearn: Chairman, president and CEO

R.L. (Randy) Broiles: Senior VP, resources division

P.A. (Paul) Smith: Controller and senior VP, finance
and administration

Enhances shareholder value through the
Consistent Management Approach
Management & Business Strategy

Sustained emphasis on 4
corporate priorities:
 Operational
 Growing
excellence
profitable sales volume
 Achieving
and maintaining a
best-in-class cost structure
 Improving
asset mix
the productivity of the
Business Segments

Three business segments:
 Natural
Resources (Upstream)
 Petroleum
 Chemicals
Products (Downstream)
Natural Resources

Conventional Oil and Gas
 Norman
Wells in Northwest Territories
 West Pembina in Alberta
 Wizard Lake

Oil Sands - Cold Lake in Alberta

Tar Sands - Syncrude in Alberta

Exploration and Development
 Mackenzie
Delta
Major Oil Sands Deposits
Oil Sands – Cold Lake Operations

Imperial Oil owns 78,000 hectares of oil sands

Cold Lake is the second largest thermal heavy-oil
operations in the world

Development drilling program and research

Increasing royalties to be paid to government
Oil Sands – Cold Lake Operations
Oil Sands – Cold Lake Operations
Tar Sands – Syncrude Operations
Tar Sands – Syncrude Operations

Located near Fort McMurray, Alberta

The single largest crude oil producer in Canada

Three main activities: recover shallow deposits
of tar sands using open-pit mining methods,
extraction of crude bitumen, and production of
synthetic crude oil

Recent investment in expansions (Aurora)
Exploration and Development Mackenzie Delta

Development of 3
natural gas fields:
Taglu, Parsons Lake,
and Niglintgak

Shared project with
ConocoPhillips, Shell
Canada, Exxon Mobil,
and the Aboriginal
Pipeline Group
Petroleum Products

Four refineries: Sarnia, Strathcona, Darmouth,
and Nanticoke

Nation-wide distribution system with 30 primary
terminals
Petroleum Products

Markets over 700 petroleum products
throughout Canada

Distributed and marketed through over 2000
Esso stations, 100 commercial facilities, and 3
urban home heating operations

650 Esso convenience and 400 sites with car
washing facilities
Chemicals

Largest market share for rotational modeling
polyethylene applications and second largest
market share for injection modeling applications
in North America

Major operations located in Sarnia, Ontario
Risks and Challenges

Volatility of oil and natural gas prices

Intense competition

Environmental regulations

Need to replace reserves
Risks and Challenges

Earnings Sensitivity
Financial Information by Segments
Financials - Income Statement
Financials - Income Statement
Financials - Balance Sheet
Financials - Balance Sheet
Financials - Cash Flow Statement
Financials - Cash Flow Statement
Valuation Ratios
Imperial Oil
2005
2004
2003
Industry
Price/Earnings
15.1
12.37
12.56
8.40
Price/Book
5.77
3.85
3.75
3.00
Net Profit Margin
9.22%
9.14%
8.88%
6.40%
Dividend Yield
0.81%
1.24%
1.51%
2.46%
ROE
39.20%
32.46%
30.75%
20.70%
EPS
7.62
5.75
4.58
N/A
62.20%
23.67%
28.31%
N/A
Annual Growth
1 Year Stock Price vs. S&P Energy
5 Year Stock Price vs. S&P Energy
Discounted Cash Flow Model

Gordon Growth Model
k
= 0.0387
 g = 0.0289
 P = Div/(k-g) = 0.94/(0.0387-0.0289) = $95.92

IMO is overvalued slightly compared with its
current stock price
Conclusion & Recommendation

Leader in market with
low risk

Sustainable growth

High ROE

Strong dividend and
repurchase record

Recommendation: BUY
Suncor
Energy
Agenda



Company Background
Management Team
Integrated Strategy







Oil Sands
Natural Gas
Refining and Marketing – Canada
Refining and Marketing – US
Analysis on Suncor’s Consolidated Financial
Statements
Stock Information as of March 10, 2006
Recommendation
About Suncor

An integrated energy company

Strategically focused on developing one of the world’s largest petroleum resource
basins – Canada’s Athabasca oils sands

Pioneering the industry in 1967 and became a publicly traded company in 1992

The core oil sands business is supported by conventional natural gas production
in Western Canada and downstream refining, marketing and retail businesses in
Ontario and Colorado

Significant progress since 1992:

Daily oil sands production has more than tripled

One of the lowest cost producers in North America

Growth in market capitalization ($1 billion to more than $19 billion at the end of
2004)
Corporate Committee










Richard George – President & CEO since 1991
Kenneth Alley – Senior VP & CFO since 2003 (join Suncor in 1984)
Mike Ashar – Executive VP, Refining and Marketing since 2003
(join Suncor in 1987)
David Byler – Executive VP, Natural Gas & Renewable Energy since 2000
(join Suncor in 1979)
Terry Hopwood – Senior VP & General Council since 2002
(join Suncor in 1988)
Sue Lee – Senior VP, HR & Communications since 1996
Jay Thornton – Senior VP, Business Integration
Kevin Nabholz – Senior VP, Major projects since 2002
(join Suncor in 1986)
Steven Williams – Executive VP Oil Sands since 2003 (join Suncor in 2002)
Thomas Ryley – Executive VP, Energy Marketing & Refining
(join Suncor in 1983)
Integrated Strategy

4 major business
divisions:
1.
2.
3.
4.
Oil Sands
Natural Gas and
Renewable Energy –
produce in Western
Canada
Energy Marketing and
Refining – Ontario
Refining and Marketing –
Colorado
Integrated Strategy
With a high quality resource base that it is
estimated to contain the raw materials to produce a
potential 11 billion barrels of conventional crude
oil, Suncor doesn’t need to look for new oil
reservoirs. Instead it can focus on developing the
technology and expertise to produce higher value
crude oil products, increase production and
improve operational flexibility.
Integrated Strategy
Oil Sands

Located near Fort McMurray, Alberta
 Recovers bitumen through mining and in-situ
development and upgrades it into refinery feedstock,
diesel fuel and by products.

The foundation of Suncor’s growth strategy and represents
the most significant portion of the company’s assets.

Suncor pioneered the world’s first commercially successful oil
sands operation in 1967 and today, with total production
nearing the one billion barrel mark and enough reserves to
sustain production for the next 50 years, the company remains
a leader in oil sands development.
Oil Sands
Natural Gas

Primarily produces conventional natural gas in Western Canada

Serves as a price hedge that provides the company with a degree
of protection from volatile market prices of natural gas purchased
for internal consumption.

To ensure natural gas production keeps pace with company-wide
natural gas purchases, NG is targeting production increases of 3%
to 5% per year.
Natural Gas Production
Marketing and Refining - Cad

Operates a 70,000 barrel per day (bpd) capacity refinery in
Sarnia, Ontario

Markets refined products to industrial, wholesale and
commercial customers primarily in Ontario and Quebec

Markets products to retail customers in Ontario through its
Sunoco-branded and joint-venture operated service networks

Encompasses third-party energy marketing and trading
activities, as well as providing marketing services for the sale
of crude oil and natural gas from the Oil Sands and NG
operations.
Outlook & Risk/Success Factors

Outlook:

Construction on a diesel desulphurization project at the Sarnia refinery
to meet current and anticipated federal sulphur regulations.
 Construction of a planned ethanol plant is expected to begin in 2005
and be completed by 2006, subject to regulatory approvals. This facility
is expected to produce ethanol at a for blending into Sunoco-branded
and Suncor joint-venture retail gasolines.
 As a result of the fire incident, M&R may be required to purchase
additional synthetic crude oil feedstock to meet demand, resulting in
higher purchased product costs.

Risk/Success Factors Affecting Performance:

Fluctuations in demand and supply for refined products, margin and
price volatility.
 The risk of cost overruns for the execution of capital projects.
 Numerous risks and uncertainties that could affect construction
schedules of the diesel desulphurization project.
Refining and Marketing - US

Downstream assets based in Denver, Colorado (acquired in August
2003)
 This acquisition is part of an integration strategy aimed at
improving access to the North American energy markets through
acquisitions, long-term contracts and possible joint-ventures.

Operates a 60,000 barrel per day (bpd) capacity refinery

Markets refined products to customers primarily in Colorado,
including retail marketing through 43 Phillips 66-branded retail
stations in the Denver area.
Outlook & Risk/Success Factors

Outlook:

Approximately $260m on new capital project
 Spend $29 million by 2006 to meet existing obligations between the refinery and
the United States Environmental Protection Agency and the State of Colorado.
 42-day scheduled maintenance is planned for pipeline and refinery equipment.
 R&M’s existing four-year contract with the local Paper, Allied-Industrial Chemical
and Energy Workers International Union, which applies to hourly wage
employees at the refinery, will expire in January 2006.

Risk/Success Factors Affecting Performance:

Fluctuations in demand for refined products, margin and price volatility and
market competitiveness
 The risks associated with the execution of the fuels desulphurization project
 Numerous risks and uncertainties can affect construction schedules
 A weaker Canadian dollar would result in a higher funding requirement for U.S.
capital programs.
Outlook & Risk/Success Factors

Outlook:

Approximately $260m on new capital project
 Spend $29 million by 2006 to meet existing obligations between the refinery and
the United States Environmental Protection Agency and the State of Colorado.
 42-day scheduled maintenance is planned for pipeline and refinery equipment.
 R&M’s existing four-year contract with the local Paper, Allied-Industrial Chemical
and Energy Workers International Union, which applies to hourly wage
employees at the refinery, will expire in January 2006.

Risk/Success Factors Affecting Performance:

Fluctuations in demand for refined products, margin and price volatility and
market competitiveness
 The risks associated with the execution of the fuels desulphurization project
 Numerous risks and uncertainties can affect construction schedules
 A weaker Canadian dollar would result in a higher funding requirement for U.S.
capital programs.
2005 - Promised and Delivered






Recovered from the challenging fire damage at the start of the year, which
lowered production capacity from 225,000 to 171,000 hence higher
production cost per barrel
All recovery is on schedule and completed in September and full production
capacity recovered.
At the mean time able to control our net debt to cash flow ratio of only 1.2,
despite a 2.9 billion recover expenditure on the fire recovery
Commissioned a 450 million expansion, bringing production capacity up by
15% to 260,000 barrels per day
Acquired Valero Energy Corporation, and became the largest refining
operation in the U.S Rockies area
Continued to improve energy efficiency, greenhouse effect offset and new,
renewable energy projects.
Risk/Success Factors







Commodity prices
Exchange rates
Environmental regulations
Stakeholder support for growth plans
Extreme winter weather
Regional labour issues
Each business segment Risk/Success factors
Subsequent Event

Strong 4th Quarter results




1.214 billion earning , up from 1.020 billion
Damage to fire last year recovered, fully functional
Production capacity up to 260000 bpd from 225000 bpd
However:



Production is down: 206100 down from 263300
Average cost up as a result: 19.50 from 11.95
Net debt was 2.9 billion, compared to 2.2 billion from 2004
Outlook & Risk/Success Factors
Outlook & Risk/Success Factors

Control cost per barrel @ 16 to 16.75

Increase bitumen supply with proved supply and
upgrader capacity to 350,000 bpd in 2008

Increase natural gas production to an average of 205 to
210 mmcf per day.

Maintain a strong balance sheet with debt and hedging
management with 3.5 billion investment in 2006
Consolidated
Financial Statements
Sensitivity Analysis
Consolidated Statement of
Earnings
Revenues

Revenues INCREASE: $2421 millions (27.9% increase from 2004)

The increase resulted primarily from:
 Higher average commodity price (offset by a 7% increase in
the average CDN$/ US$ exchange rate)  increased revenue
by $1.2 billion
 Increase crude oil production  increased revenue by approx
$220 million
 Higher refined product wholesale and retail prices, increase
in sales volumes, one full year of operations of the Refining
and Marketing division  increased revenue by approx $890
million
These increased is partially offset by hedging losses  reduced
revenue by approx $380 million

Expenses



Purchases of crude oil and crude oil products INCREASE
 Higher benchmark crude oil feedstock prices,
 Higher volume and refined products feedstock required as a result of 1 full year of operations for
R&M
Operating, Selling and General  INCREASE
 The effects of 12 months of operations at R&M - US
 Higher operating expense  higher energy costs
 Higher cost for obtaining certification under the Sarbanes-Oxley Act, and higher stock-based
compensation expense
 Increased maintenance activities
Financing expense  DECREASE
 Lower foreign exchange gains on the Suncor’s US$ denominated long-term debt
Net Income

Revenue increased by 27.9%, Expenses increased by 29.1%
Earnings Before Income Taxes increased by 22.8%

Income Tax expense  INCREASED

Net Income, EPS  INCREASE by $0.33

Cash Dividend  INCREASE by 4.3%
Consolidated Net Income
Net Income Analysis
Balance Sheet Statements
Analysis of Balance Sheet

Increased in AR - due to higher sales volumes and
higher price

Increased in Property, Plant and Equipment – due to
company’s expansion

Increased in AP and accrued liabilities related to
increased capital spending in the fourth quarter and
higher accrued royalties payable
Derivative Financial Instruments

Commodity Hedging Activities

To hedge against the potential adverse impact of changing market prices due to
variations in underlying commodity indices
 Suncor did not enter into any new arrangements in 2004. The strength of the its
financial position, combined with stable operating costs and a growing
production base, reduces the company’s risk to crude oil price volatility.
 Prior to the suspension of the hedging program, Suncor had entered contracts
to fix the price on 36,000 barrels of crude oil per day at an average price of
US$23 per barrel, which resulted in decreased in net earnings by $397 million.

Financial Hedging

Risk management strategy to manage exposure to interest rate fluctuations
 The interest rate swap contracts involve an exchange of floating rate and fixed
rate interest payments between the company and investment grade
counterparties

Energy Trading Activities

Energy trading activities focus on the commodities the company produces.
 To gain market information and earn trading revenues
Cash Flow Statements
Cash Flow from Operations
Cash Flow Analysis
Return on Capital Employed
(ROCE)
Return on Capital Employed
Capital Employed
Return on Capital Employed
Stock Information
If $100 was invested in Suncor on December 31, 1992, it would have
grown to $3,190 by the end of 2005.
Stock Info as of March 10, 2005
Total Return on Investment

Suncor’s return to
shareholders has
outperformed the TSX
Integrated Oils and the
S&P 500.
Market Segment
Analysis
Recommendations
BUY
Encana Corporation
Agenda








History and Background
Management Team
Corporate Profile
Business Strategy
Financial Statement Analysis
Risk Management
Stock Information as of Wednesday, March 08, 2006
Recommendation
History and Background

In 2002, merger agreement was reached between two
energy company:

Alberta Energy (AEC)
 PanCanadian Energy (PCE)

Alberta Energy is created by the government of Alberta
in 1975

By 1993 Alberta government sold the entire ownership to make AEC as the
public owned company
 By 1995, AEC put its growth strategy on oil and gas after selling off all other
resource investment.
 By 2001, AEC has become the largest natural gas producer and also largest
independent operator of gas storage.
History and Background

PanCanadian was created by Canadian Pacific and gas
company in 1958

PanCanadian roots go back to the construction of the nation first
transcontinental railways
 Canadian Pacific Railways made natural gas discovery in 1883 and
later create Canadian Pacific and gas company in 1958 which later
create PanCanadian in 1973
 In 2000, PanCanadian launches one of the continent largest CO2
miscible flood project at Weybury, Saskatchewan

In 2002, Gwyn Morgan and David O’Brien announced
the merger agreement between AEC and PanCanadian


Each AEC Share was converted to 1.472 PanCanadian Share
On April 8, Encana begin trading on the TSX and NYSE under the
symbol ECA. Its enterprise value now is around 52 billion
History and Background
Management Team

Gwyn Morgan, President & CEO

Served as Chief of Operating Officer before elected as CEO in January 01,
2006
 Education : Northern Alberta Institute of Technology and University of
Wyoming
 Key architect of the company North America’s resource play strategy
 More than 25 years of experience

Brian Ferguson, Executive Vice President & CFO

Education : University of Alberta and University of Western Ontario
 Member of CICA, CICA’s risk management and governance board
 More than 22 years of experience
Management Team

Roger Biemans, Executive Vice President and President of
Canadian Plans Region

Responsible for upstream exploration and production in the Alberta and
Saskatchewan
 Education : University of Calgary and University of Western Ontario
 More than 10 years of experience

John Brannan, Managing Director & Frontier and International New
Ventures




Responsible for leveraging Canadian frontier and international new venture
Education : Texas A&M
More than 26 years of experience
Sherri Brillon, Vice President, Strategic Planning & Portfolio Management

Responsible for the organization wide-coordination and critical analysis of the
company’s strategic plan
 Education : University of Alberta
 More than 21 years of experience
Management Team

Bill Oliver, Executive Vice President & President, Midstream &
Marketing




Gerry Protti, Executive Vice President, Corporate Relations



Responsible for marketing of North American resources play
Education: Simon Fraser University, B.C and Cornell University, N.Y
More than 20 years of experience
Responsible for regulatory services and international, aboriginal, public and community
relations
Education: University of Alberta, University of Western Ontario, and University of
Pennsylvania
Michael M. Graham, Executive Vice President & President,
Canadian Foothill Regions



Responsible for all upstream operations in Northern Alberta, B.C, and southern Northwest
Education: University of Wyoming
More than 20 years of experience
Management Team

Hayward Walls, Executives Vice-President, Corporate Service &
Chief Information Officer
Responsible for Encana’s information system and technology and human
resources
 Education: University of Brunswick
 More than 23 years of experience


Don T. Swystun, Executive Vice-President, Corporate Development
Responsible for Encana’s acquisitions, reserves assessment, and business
inteligence
 More than 11 years of experience


Jeff Wohajn, Executive Vice President and President Encana Oil
and Gas (USA)


Responsible for upstream exploration and production in the U.S
Education: University of Calgary and Richard Ivery School of Business
Company Overview

Primary Goal


Continue to increase net asset value per share by balancing
capital investment between:
 Disciplined development of resources play
 Share buyback
Target

An average 10% annual sales growth per share
Company Overview

Strategic Focus



North American natural gas
Canadian in-situ oilsands
Competitive Advantage





Large land base with huge undeveloped resources
Leading to technical competencies
30 years of experiences with unconventional reservoir
development
Low operating cost
High working interest and infrastructure control
Company Overview

Mission
Energy for People

Vision
EnCana will be the world's High Performance Benchmark
independent oil and gas company

Constitutional Meritocracy
EnCana is a company where shared principles guide our behaviour
and merit determines our reward

Our Shared Principle
Strong Character, Ethical Behaviour, high performance, great
expectation, Dynamic and discipline
Business Strategy
1) Focus on Resource Play
Business Strategy
Business Strategy
2. Divesture of conventional asset and International operation other than
North America
Asset to be divestured in 2005:
- Gulf of Mexico
2.1 billion (closed)
-
Canadian conventional
326 million (closed)
-
Ecuador
1.42 billion will close at Q4 2005
Natural Gas Liquid Business
Targeted for Q4 of 2005
Gas Storage Business
Targeted for Q1 of 2006
Business Strategy
3. Acquisition

Acquisition Tom Brown Inc to strengthen the asset position for
$2.7 billion to increase Net Asset Value of share

This acquisition align with the resource play strategy

Tom Brown Inc appear to be undervalued by the appraisal
compared to the potential resource calculated by unconventional
way
Business Strategy


Acquisition and Capital Investment
Since 2002:
 Has invested 6.3 billion in
key resource development
 Invested 4.3 billion in
property and corporate
acquisition
Business Strategy
4. Improving Technology
- CO2 Miscible Flood
Ex : Weyburn Project
- Coalbed Methane
Business Strategy
4. Technology (continued)
- GL-Dhows
allow to separate gas and
liquid; oil and water
- SAGD
Upstream operation
•Upstream income increase by 30% compared to increase of 87% from 2002 to 2003
•North Amercian Production and mineral taxes for produced gas increased 76% in
2004 compared to 2003 primarily due to increased in natural gas prices and volumes
in US and higher effective tax rate on production growth in Colorado
Midstream and Market
Optimization
• Revenues and purchased products expense in this sector increased in 2004
compared to 2003 result due to increases in commodity prices
• operating cash flow increase 68 million in 2004 as a result of improved
margin from natural gas liquids and gas storage optimization
Corporate
• Revenues happen to be losses since there is unrealized mark to market losses
related to financial and commodity contract
• While the interest expense increase drastically because of higher outstanding
debt level during the purchase of TBI
CAPEX Summaries
•The CAPEX is increasing by 22% compared to 24 % from 2002 to 2003.
• The increasing CAPEX in upstream and acquisition is offset by disposition
some of the asset
Corporate Value Drivers

Increase production capacity
from existing assets.

Reduce operating costs of
existing assets through
economies of scale and by
upgrading process
technologies.

Increase reserves (asset base)
by pursuing new developments.
Reserves  Resource Play

10 Key Resource Play
Proved Reserves
Reserves  Resource Play
1. Greater Sierra
Reserves  Resource Play
2. Cutbank Ridge
Reserves  Resource Play
3. Coalbed Methane
Reserves  Resource Play
4. Shallow Gas
Reserves  Resource Play
5. Jonah
Reserves  Resource Play
6. Piceance
Reserves  Resource Play
7. Fort Worth
Reserves  Resource Play
8. East Texas
Reserves  Resource Play
9. Foster Creek
Reserves  Resource Play
10. Pelican Lake
Analysis of Income
Statement

Three sources of revenue; upstream, midstream and market
optimization, and corporate

Net earnings increased $1.1 billion in 2004 including $1.4 billion
gain on sale of U.K discontinued operations

Net earnings from Continued Operation is increased to $ 2.2 billion
from $ 2.1 billion

Maintain a steady based stock compensation 17 million and
planning to reduce the number of stock of stock based
compensation
Analysis of Balance Sheet

50% of its asset were financed through Debt and the
other 50% through shareholder Equity

Its liquidity level to pay its current debt is high 1.18
compared to 1.26 in 2003

Number of debt outstanding increased by 1 billion
caused of the purchase of TBI must be accommodated
by borrowing

Property, Plant and Equipment is increased by 30% from
17,770 to 23,140 million
Analysis of Cash Flow

Cash flow increased to $4,980 million in 2004, $521 million increase from
2003

Cash flow from continuing operations increased $ 470 million to $ 4,605
milllions from 2003

While Cash flow from operating is 4.5 billion compared to 4.3 billion (effect
of discontinued operation, other change in asset and liabilities and non cash
working capital)

Free Cash Flow = 4.5 – 2.3 – 4.8 = -2.6 billion

They Maintain a steady investment on CAPEX while buying Tom Brown Inc
as their business combination.

They are paying an increasing dividend by (32%) and purchase a number
of shares
Financing Activities
Financial Instrument and Risk
Management

Financial (commodity price, foreign exchange, interest
rate & credit risks)

Operational

Environmental, health, safety and security

Reputational
Financial Instrument and Risk
Management

Lock in near term ROI

Downside protection for Cash flow

Combination of fixed price swaps & put options
Financial Instrument and Risk
Management
Financial Instrument and Risk
Management
Stock Information
as of 8 March 2006




Ticker symbol
: ECA
Publicly traded in
- New York Stock Exchange (NYSE)
- Toronto Stock Exchange (TSE)
Volume
: 4,556,100
Price
: CAD $49.44
: US $42.72

52 week High/Low: $59.82 / $31.31
Stock Information as of Wednesday,
8 March 2006








Shares Outstanding
Market Capitalization
Dividend Yield
Annual Dividend
Last Dividend Payout
Last Dividend Amount
P/E
EPS
: 1,765 million
: 71,482.58 million
: 0.70%
: $ 0.30
: 12/13/2005
: $ 0.08
: 11.68
: 3.66
Stock Price Movement as of Mar 8,06

6 months

1 year

3 years

5 years
Encana’s Direct Comparison with S&P 500
of 8 March 2006

6 months

1 year

3 years

5 year
Fisher Approach

Functional Factor
 Superior technology
 Leader in natural gas industry and natural gas storage

People Factor
 Educated and experienced management

Essential Investment Characteristic
 Strong competitive position
 Hedging

The Price of the stock
 28.6 % below 52 week high and 19.1 % above 52 week low
 High P/E ratio
Recommendation
BUY
The End
Any Questions?