OREANDA-NEWS. Encana built on its track record of strong operational and financial performance through the first quarter. The company delivered basin-leading well results and drilling and completions costs in its core four assets. Encana took decisive steps to further lower its corporate costs and reduce long-term debt. Highlights include:

-- company on track to meet or beat 2016 guidance announced in February -- total production of 383,400 barrels of oil equivalent per day (BOE/d)

-- core four assets contributed 269,100 BOE/d, or 70 percent of total production

-- reduced drilling and completions costs in core four assets by between 22 and 44 percent compared to 2015 average

-- reduced general administrative costs by over 20 percent compared to the previous quarter, excluding restructuring and long-term incentive costs

-- on track to deliver $550 million in year-over-year cost savings

-- launched and completed successful tender offers to retire $489 million of senior notes

"The quality of our core four assets, combined with increased capital efficiency and operational innovation, are delivering basin-leading performance, enhancing our competitiveness and contributing to cash flow," said Doug Suttles, Encana President & CEO. "Our teams are drilling some of the fastest, highest performing and lowest cost wells in our core four assets and we continue to find greater efficiency in every part of the business. We are on track to deliver $550 million of year-over-year cost savings."

Basin-leading well performance and continued capital efficiency

During the first quarter, Encana's internal analysis and independent third-party research indicates the company is delivering well performance among the top of its peer groups in its core four assets. The company reduced its average Permian and Eagle Ford drilling and completion costs by 24 and 44 percent respectively, compared to its 2015 average and has already exceeded its 2016 cost reduction targets.

In the Duvernay, Encana reduced its average drilling and completion costs by 35 percent compared to its 2015 average and the company has around 65 percent of the play's top 40 performing wells, based on 180-day initial production rates. Encana continues to unlock the condensate potential in the Montney, with recent Pipestone wells significantly exceeding liquids expectations. Recent condensate-rich wells in Dawson South and Tower are outperforming type curves. The company lowered its average Montney drilling and completion costs by 22 percent compared to the 2015 average and has already exceeded its 2016 cost reduction target.

Proactive financial management lowers costs and enhances cash flow

Encana continued to proactively manage its balance sheet in the first quarter by launching and completing successful tender offers to purchase some of its outstanding senior notes. As a result, the company retired $489 million of its senior notes at a cost of $400 million, excluding accrued and unpaid interest. Encana expects annual interest expense savings associated with its early retirement of senior notes to be around $30 million, or around $680 million undiscounted over the life of the acquired notes, before tax and borrowing costs. The tender offers complement Encana's proactive $2 billion debt reduction in 2015.

During the quarter, Encana lowered its general and administrative expense by over 20 percent compared to the previous quarter (excluding restructuring and long-term incentive costs). The company is on track to deliver $550 million in year-over-year cost efficiencies in 2016 and expects the full-year benefit of these savings will be even greater in 2017. The company has hedged approximately 75 percent of expected 2016 oil and condensate production and 85 percent of expected natural gas production for the remainder of the year, providing significant cash flow protection.

First quarter results

Encana's core four assets contributed 269,100 BOE/d or 70 percent of total first quarter production of 383,400 BOE/d. Total liquids production averaged 130,800 barrels per day (bbls/d), an increase of eight percent from the same period last year. Natural gas production in the first quarter of 2016 averaged 1.5 billion cubic feet per day (Bcf/d). Encana is on track to meet or beat its 2016 guidance, announced on February 24, 2016.

Encana generated first quarter cash flow of $102 million or $0.12 per share, compared to $383 million or $0.45 per share in the fourth quarter of 2015. The decrease is largely attributable to sharp declines in oil and natural gas prices, lower realized hedging gains, reduced liquids volumes and a one-time restructuring charge of $31 million. The company recorded a first quarter operating loss of $130 million or $0.15 per share and a net loss of $379 million, which included after-tax, non-cash ceiling test impairments of $607 million, partially offset by an after-tax non-operating foreign exchange gain of $295 million.

Encana's Risk Management Program

As at April 26, 2016, Encana has hedged approximately 75 percent of expected 2016 oil and condensate production and 85 percent of expected natural gas production.

The company has hedged approximately 75 percent of May to December 2016 oil and condensate production. This includes 55,000 bbls/d of May to December 2016 production hedged using WTI fixed price contracts at an average price of $55.61 per bbl. Encana also has approximately 22,000 bbls/d of July to December 2016 oil and condensate production hedged under three-way options. The WTI three-way options are a combination of a sold call, purchased put and a sold put with average prices of $62.99, $55.00 and $47.11 per bbl, respectively.

Encana has 10,000 bbls/d of expected Q1 2017 crude and condensate hedged using WTI fixed price contracts at an average price of $50.86 per bbl.

The company has hedged approximately 85 percent of May to December 2016 natural gas production. This includes 889 million cubic feet per day (MMcf/d) of May to December 2016 production hedged using NYMEX fixed price contracts at an average price of $2.67 per thousand cubic feet (Mcf). Encana has also executed 335 MMcf/d of May to December 2016 NYMEX hedges as costless collars. These costless collars combine a purchased put and sold call with average strike prices of $2.22 per Mcf and $2.46 per Mcf, respectively. The company participates in price movements between the put and call levels, while achieving a firm price floor as protection against weak prices.

Encana has approximately 300 MMcf/d of expected 2017 natural gas production hedged under three-way options. The NYMEX three-way options are a combination of a sold call, purchased put and a sold put with average prices of $3.07, $2.75 and $2.27 per Mcf, respectively. Encana also has approximately 350 MMcf/d of NYMEX fixed price contracts for Q1 2017 at an average price of $3.07 per Mcf.

Dividend Declared

On May 2, 2016, the Board declared a dividend of $0.015 per share payable on June 30, 2016 to common shareholders of record as of June 15, 2016. In Q2 2015, organizational structure changes were formalized which resulted in a revision to the Q1 2015 operating earnings to exclude restructuring charges incurred in the first quarter.