Actionable news
0
All posts from Actionable news
Actionable news in ECA: ENCANA CORPORATION,

Encana: Interim Condensed Consolidated Financial Statements

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...


More