This Oil Stock Is Thriving Through Innovation
After several years of hard work driving down costs and repositioning its portfolio, Canadian shale driller Encana (NYSE: ECA) announced its return to growth mode last fall by unveiling a new five-year plan. Underpinning that strategy was a vast inventory of premium return drilling locations across four core shale plays, which the company believed could grow production and cash flow at a rapid rate as long as crude averaged $55 per barrel. However, thanks to continued innovation and efficiency gains, Encana recently updated its five-year plan, which shows it becoming a cash flow machine in the coming years even if oil doesn't budge.
Last October, Encana outlined its five-year growth potential at its investor day. The shale driller noted that it had built up an inventory nearly of 10,000 premium return well locations across four core regions, which Encana defined as those that could deliver a 35% after-tax rate of return at $50 oil. While that was below the rate of return EOG Resources' (NYSE: EOG) premium wells would earn at that level, it was still high enough to fuel significant growth over the five-year plan. Encana anticipated that it was on pace to increase cash flow 300% by 2021 as a result of drilling these higher-margin wells, which would double its corporate margin as production rose 60%. All the company needed to meet this goal was for oil to average $55 per barrel, which would enable it to start living within cash flow by 2018.
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Source: Fool.com