EnCana Splits Into Natural Gas Company and Oil Sands Company

12 May 2008

Canadian natural gas and oil company EnCana Corporation will split into two energy companies—one a natural gas company with a portfolio of early life, North American natural gas resource plays and the other a fully-integrated oil company with in-situ oilsands properties and refineries, as well as an underlying foundation of more reliable oil and gas resource plays.

The resulting publicly-traded integrated oil company, which has a working name of Integrated Oil Co (IOCo), will focus on the development of EnCana’s Canadian oilsands assets and refinery interests in the United States, underpinned by a well-established natural gas and oil production base in Alberta and Saskatchewan. IOCo assets, which encompass EnCana’s Integrated Oil and Canadian Plains divisions, represent about one-third of EnCana’s current production and proved reserves.

EnCana’s other major operating divisions, Canadian Foothills and USA, will form a pure-play natural gas company aimed at growing existing high-potential resource plays in Canada and the United States. With a working name of GasCo, it will represent about two-thirds of EnCana’s current production and proved reserves. It is expected that GasCo will retain the name EnCana Corporation. The permanent name of IOCo will be determined before the transaction closes.

Under the proposed transaction, which is expected to be completed in early 2009, EnCana common shareholders will receive one share in each of GasCo and IOCo in exchange for each EnCana share held.

Upon completion of this transaction, it is anticipated that IOCo will be positioned to deliver sustained growth from industry-leading oilsands properties that contain resources sufficient to fuel significant oilsands growth for decades ahead. IOCo will integrate two producing upstream Alberta oilsands assets—Foster Creek and Christina Lake—and two refineries at Wood River in Illinois and Borger in Texas. Upstream, construction is underway to increase production capacity more than 200% to an estimated average of about 110,000 net barrels of oil per day (bbls/d) by 2012. Current production is about 30,000 net bbls/d.

We estimate that IOCo’s integrated oilsands assets are capable of achieving double-digit growth between now and 2016...In Saskatchewan, the Weyburn oil field is home to the world’s largest carbon sequestration project. It has garnered global attention as a potential way to help reduce greenhouse gas emissions, and we see a natural opportunity for transferring its technology to our oilsands projects.

—Brian Ferguson, IOCo’s designated President and Chief Executive Officer and currently EnCana’s Chief Financial Officer

In October, 2006 EnCana announced that it had entered into an agreement with ConocoPhillips to create an integrated oil business. At that time, independently determined best estimates of recoverable bitumen for Foster Creek and Christina Lake were disclosed at more than 6.5 billion barrels and more than 2.5 billion barrels for Borealis, which is not part of the joint venture with ConocoPhillips. These estimates have not been updated and are not current.

Over the next decade, IOCo’s target as part of the integrated oilsands joint venture with ConocoPhillips is to increase gross upstream bitumen production from Foster Creek and Christina Lake to approximately 400,000 bbls/d (200,000 bbls/d net to IOCo) and downstream refining capacity to about 510,000 bbls/d (255,000 bbls/d net to IOCo).

IOCo’s well-established shallow gas resource plays in Alberta are capable of providing strong cash flow to help grow production from its oilsands resources. Natural gas is the source fuel for oilsands steam generation and IOCo’s gas production also serves as a natural hedge against volatile gas prices. IOCo’s assets will also include successful enhanced oil developments at Pelican Lake in northern Alberta. Future in-situ potential opportunities include SAGD (steam assisted gravity drainage) development of the Borealis oilsands assets. During the first quarter of 2008, IOCo’s designated assets were producing about 100,000 bbls/d of oil and natural gas liquids (NGLs) and about 925 million cubic feet per day (MMcf/d) of natural gas, while the refinery assets were processing about 225,000 bbls of net oil per day.