Form 6-K ENCANA CORP For: Nov 03

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/24/2024

1. TSLA
2. ENPH
3. TXN
4. SPOT
5. V

6. MSCI
7. STX
8. MAT
9. TMO
10. HUM

Top News Most Read Special Reports

November 3, 2016 4:24 PM EDT

E-mail

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934


For November 3, 2016		Commission File Number: 1-15226

ENCANA CORPORATION

(Translation of registrant’s name into English)

Suite 4400, 500 Centre Street SE

PO Box 2850

Calgary, Alberta, Canada T2P 2S5

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F Form 40-F ✓

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Exhibits 99.1 and 99.2 to this report, furnished on Form 6-K, shall be incorporated by reference into or as an exhibit to, as applicable, each of the registrant’s Registration Statements under the Securities Act of 1933: Form F-3 (File Nos. 333-187492 and 333-212667) and Form S-8 (File Nos. 333-124218, 333-85598, 333-140856 and 333-188758).

DOCUMENTS FILED AS PART OF THIS FORM 6-K

See the Exhibit Index to this Form 6-K.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 3, 2016


		ENCANA CORPORATION (Registrant)

By:		/s/ Dawna I. Gibb
		Name: Dawna I. Gibb Title: Assistant Corporate Secretary

Form 6-K Exhibit Index


Exhibit No.		The following documents have been filed with Canadian securities commissions:

99.1		Unaudited Interim Condensed Consolidated Financial Statements for the period ended September 30, 2016.

99.2		Management’s Discussion and Analysis for the period ended September 30, 2016.

99.3		Supplemental Financial Information (unaudited) Exhibit to the September 30, 2016 Interim Condensed Consolidated Financial Statements “Consolidated Interest Coverage Ratios”.

99.4		Certificate, dated November 3, 2016, of Douglas J. Suttles, President & Chief Executive Officer, regarding the “Certification of Interim Filings” pursuant to Form 52-109F2.

99.5		Certificate, dated November 3, 2016, of Sherri A. Brillon, Executive Vice-President & Chief Financial Officer, regarding the “Certification of Interim Filings” pursuant to Form 52-109F2.

Exhibit 99.1

LOGO

Encana Corporation

Interim Condensed Consolidated Financial Statements

(unaudited)

For the period ended September 30, 2016

(U.S. Dollars)

Third quarter report

for the period ended September 30, 2016

Condensed Consolidated Statement of Earnings (unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,
($ millions, except per share amounts)		2016			2015			2016			2015

Revenues, Net of Royalties	(Note 3)	$	979		$	1,312		$	2,096		$	3,391

Expenses	(Note 3)

Production, mineral and other taxes			20			38			73			113

Transportation and processing			202			317			715			954

Operating			145			181			446			552

Purchased product			197			60			349			260

Depreciation, depletion and amortization			184			352			675			1,212

Impairments	(Note 8)		-			1,671			1,396			5,668

Accretion of asset retirement obligation	(Note 11)		12			11			38			34

Administrative	(Note 15)		91			61			231			217

Interest	(Note 5)		99			105			309			508

Foreign exchange (gain) loss, net	(Note 6)		49			348			(307	)		918

(Gain) loss on divestitures	(Note 4)		(395	)		2			(393	)		(14	)

Other	(Note 9)		(4	)		(3	)		(67	)		2

			600			3,143			3,465			10,424

Net Earnings (Loss) Before Income Tax			379			(1,831	)		(1,369	)		(7,033	)

Income tax expense (recovery)	(Note 7)		62			(595	)		(706	)		(2,480	)

Net Earnings (Loss)		$	317		$	(1,236	)	$	(663	)	$	(4,553	)


Net Earnings (Loss) per Common Share

Basic & Diluted	(Note 12)	$	0.37		$	(1.47	)	$	(0.78	)	$	(5.59	)


Condensed Consolidated Statement of Comprehensive Income (unaudited)
		Three Months Ended September 30,						Nine Months Ended September 30,
($ millions)		2016			2015			2016			2015

Net Earnings (Loss)		$	317			$ (1,236	)		$ (663	)		$ (4,553	)

Other Comprehensive Income (Loss), Net of Tax

Foreign currency translation adjustment	(Note 13)		36			175			(220	)		600

Pension and other post-employment benefit plans	(Notes 13, 17)		(1	)		1			(1	)		2


Other Comprehensive Income (Loss)			35			176			(221	)		602


Comprehensive Income (Loss)		$	352		$	(1,060	)		$ (884	)	$	(3,951	)

See accompanying Notes to Condensed Consolidated Financial Statements

Encana Corporation

Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Condensed Consolidated Balance Sheet (unaudited)

($ millions)

As at
September 30,
2016

As at
December 31,
2015

Assets

Current Assets

Cash and cash equivalents

766

271

Accounts receivable and accrued revenues

583

645

Risk management

(Notes 18, 19)

367

Income tax receivable

369

324

1,733

1,607

Property, Plant and Equipment, at cost:

(Note 8)

Natural gas and oil properties, based on full cost accounting

Proved properties

39,381

40,647

Unproved properties

5,339

5,616

Other

2,244

2,181

Property, plant and equipment

46,964

48,444

Less: Accumulated depreciation, depletion and amortization

(38,960

)

(38,587

)

Property, plant and equipment, net

(Note 3)

8,004

9,857

Cash in Reserve

Other Assets

269

266

Risk Management

(Notes 18, 19)

Deferred Income Taxes

1,773

1,081

Goodwill

(Notes 3, 4)

2,795

2,790

(Note 3)

14,577

15,614

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable and accrued liabilities

1,166

1,311

Income tax payable

Risk management

(Notes 18, 19)

108

1,283

1,333

Long-Term Debt

(Note 9)

4,198

5,333

Other Liabilities and Provisions

(Note 10)

2,071

1,975

Risk Management

(Notes 18, 19)

Asset Retirement Obligation

(Note 11)

740

773

Deferred Income Taxes

8,345

9,447

Commitments and Contingencies

(Note 20)

Shareholders’ Equity

Share capital - authorized unlimited common shares, without par value

2016 issued and outstanding: 956.9 million shares (2015: 849.8 million shares)

(Note 12)

4,608

3,621

Paid in surplus

1,358

1,358

Retained earnings (Accumulated deficit)

(903

)

(202

)

Accumulated other comprehensive income

(Note 13)

1,169

1,390

Total Shareholders’ Equity

6,232

6,167

14,577

15,614

See accompanying Notes to Condensed Consolidated Financial Statements

Encana Corporation

Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Condensed Consolidated Statement of Changes in Shareholders’ Equity (unaudited)


Nine Months Ended September 30, 2016 ($ millions)		Share Capital		Paid in Surplus		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income			Total Shareholders’ Equity

Balance, December 31, 2015		$	3,621	$	1,358	$	(202	)	$	1,390		$	6,167

Net Earnings (Loss)			-		-		(663	)		-			(663	)

Dividends on Common Shares	(Note 12)		-		-		(38	)		-			(38	)

Common Shares Issued	(Note 12)		986		-		-			-			986

Common Shares Issued Under

Dividend Reinvestment Plan	(Note 12)		1		-		-			-			1
Other Comprehensive Income (Loss)	(Note 13)		-		-		-			(221	)		(221	)


Balance, September 30, 2016		$	4,608	$	1,358	$	(903	)	$	1,169		$	6,232

Nine Months Ended September 30, 2015 ($ millions)		Share Capital		Paid in Surplus		Retained Earnings			Accumulated Other Comprehensive Income			Total Shareholders’ Equity

Balance, December 31, 2014		$	2,450	$	1,358	$	5,188		$	689		$	9,685

Net Earnings (Loss)			-		-		(4,553	)		-			(4,553	)

Dividends on Common Shares	(Note 12)		-		-		(166	)		-			(166	)

Common Shares Issued	(Note 12)		1,098		-		-			-			1,098

Common Shares Issued Under

Dividend Reinvestment Plan	(Note 12)		53		-		-			-			53
Other Comprehensive Income	(Note 13)		-		-		-			602			602


Balance, September 30, 2015		$	3,601	$	1,358	$	469		$	1,291		$	6,719

See accompanying Notes to Condensed Consolidated Financial Statements

Encana Corporation

Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Condensed Consolidated Statement of Cash Flows (unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,
($ millions)		2016			2015			2016			2015

Operating Activities

Net earnings (loss)		$	317		$	(1,236	)	$	(663	)	$	(4,553	)

Depreciation, depletion and amortization			184			352			675			1,212

Impairments	(Note 8)		-			1,671			1,396			5,668

Accretion of asset retirement obligation	(Note 11)		12			11			38			34

Deferred income taxes	(Note 7)		76			(576	)		(683	)		(2,442	)

Unrealized (gain) loss on risk management	(Note 19)		(41	)		(173	)		465			241

Unrealized foreign exchange (gain) loss	(Note 6)		47			241			(223	)		555

Foreign exchange on settlements	(Note 6)		(4	)		102			(89	)		337

(Gain) loss on divestitures	(Note 4)		(395	)		2			(393	)		(14	)

Other			56			(23	)		13			9

Net change in other assets and liabilities			(6	)		(18	)		(15	)		(18	)

Net change in non-cash working capital			(60	)		100			(95	)		204


Cash From (Used in) Operating Activities			186			453			426			1,233


Investing Activities

Capital expenditures	(Note 3)		(205	)		(473	)		(779	)		(1,952	)

Acquisitions	(Note 4)		(67	)		-			(69	)		(38	)

Proceeds from divestitures	(Note 4)		1,107			99			1,113			1,115

Cash in reserve			-			-			-			72

Net change in investments and other			(5	)		(170	)		(49	)		(154	)


Cash From (Used in) Investing Activities			830			(544	)		216			(957	)


Financing Activities

Net issuance (repayment) of revolving long-term debt	(Note 9)		(1,493	)		17			(650	)		137

Repayment of long-term debt	(Note 9)		-			-			(400	)		(1,302	)

Issuance of common shares	(Note 12)		981			-			981			1,088

Dividends on common shares	(Note 12)		(13	)		(38	)		(37	)		(113	)

Capital lease payments and other financing arrangements	(Note 10)		(17	)		(15	)		(49	)		(48	)


Cash From (Used in) Financing Activities			(542	)		(36	)		(155	)		(238	)


Foreign Exchange Gain (Loss) on Cash and Cash Equivalents Held in Foreign Currency			(1	)		(17	)		8			(24	)


Increase (Decrease) in Cash and Cash Equivalents			473			(144	)		495			14

Cash and Cash Equivalents, Beginning of Period			293			496			271			338


Cash and Cash Equivalents, End of Period		$	766		$	352		$	766		$	352


Cash, End of Period		$	33		$	90		$	33		$	90

Cash Equivalents, End of Period			733			262			733			262


Cash and Cash Equivalents, End of Period		$	766		$	352		$	766		$	352

See accompanying Notes to Condensed Consolidated Financial Statements

Encana Corporation

Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(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 Encana’s 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. 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, 2015, 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, 2015.

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, 2016, Encana adopted the following accounting standards updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”), which have not had a material impact on the Company’s interim Condensed Consolidated Financial Statements:

●

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 have been applied prospectively.

●

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 have been applied using a full retrospective approach.

●

ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”. The updates require 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. The updates further clarify 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 have been applied retrospectively and resulted in a $30 million decrease in Other Assets, with a corresponding $30 million decrease in Long-Term Debt as at December 31, 2015.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

2. Recent Accounting Pronouncements (continued)

New Standards Issued Not Yet Adopted

As of January 1, 2018, Encana will be required to adopt ASU 2014-09, “Revenue from Contracts with Customers” under Topic 606, which replaces Topic 605, “Revenue Recognition”, and other industry-specific guidance in the Accounting Standards Codification (“ASC”). 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 Company’s Consolidated Financial Statements.

As of January 1, 2019, Encana will be required to adopt ASU 2016-02, “Leases” under Topic 842, which replaces Topic 840 “Leases”. The new standard will require lessees to recognize right-of-use assets and related lease liabilities for all leases, including leases classified as operating leases, on the Consolidated Balance Sheet. The dual classification model requiring leases recognized to be classified as either finance or operating leases was retained for the purpose of subsequent measurement and presentation in the Consolidated Statement of Earnings and Consolidated Statement of Cash Flows. The new standard also expands disclosures related to the amount, timing and uncertainty of cash flows arising from leases. The standard will be applied using a modified retrospective approach and provides for certain practical expedients. Encana is currently assessing the standard and expects the new standard will have a material impact on the Company’s Consolidated Financial Statements.

3. Segmented Information

Encana’s reportable segments are determined based on the Company’s 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 Company’s 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 and cost mitigation 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 Company’s 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.

The interim Condensed Consolidated Statement of Earnings for the comparative period ended September 30, 2015 and the accompanying segmented information disclosed in this note have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Formerly, these property taxes and other charges were presented in either transportation and processing expense or operating expense. Encana has updated its presentation to more accurately reflect these charges within the Condensed Consolidated Statement of Earnings based on the nature of the expense recognized and to more closely align with the Company’s peers. As a result, for the three months ended September 30, 2015, the Canadian Operations reclassified $2 million from transportation and processing expense and $4 million from operating expense to production, mineral and other taxes. For the nine months ended September 30, 2015, the Canadian Operations reclassified $5 million from transportation and processing expense and $17 million from operating expense to production, mineral and other taxes. In addition, for the three and nine months ended September 30, 2015, the USA Operations reclassified $5 million and $19 million, respectively, from operating expense to production, mineral and other taxes.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

3. Segmented Information (continued)

Results of Operations (For the three months ended September 30)

Segment and Geographic Information


	Canadian Operations					USA Operations						Market Optimization
	2016			2015		2016			2015			2016			2015

Revenues, Net of Royalties	$	246		$	391	$	458		$	655		$	214		$	66

Expenses
Production, mineral and other taxes		5			6		15			32			-			-
Transportation and processing		136			151		43			155			22			-
Operating		38			34		93			137			11			4
Purchased product		-			-		-			-			197			60

		67			200		307			331			(16	)		2
Depreciation, depletion and amortization		54			64		112			265			-			-
Impairments		-			-		-			1,671			-			-

	$	13		$	136	$	195		$	(1,605	)	$	(16	)	$	2


						Corporate & Other						Consolidated
						2016			2015			2016			2015

Revenues, Net of Royalties						$	61		$	200		$	979		$	1,312

Expenses
Production, mineral and other taxes							-			-			20			38
Transportation and processing							1			11			202			317
Operating							3			6			145			181
Purchased product							-			-			197			60

							57			183			415			716
Depreciation, depletion and amortization							18			23			184			352
Impairments							-			-			-			1,671

						$	39		$	160			231			(1,307	)

Accretion of asset retirement obligation													12			11
Administrative													91			61
Interest													99			105
Foreign exchange (gain) loss, net													49			348
(Gain) loss on divestitures													(395	)		2
Other													(4	)		(3	)

													(148	)		524


Net Earnings (Loss) Before Income Tax													379			(1,831	)
Income tax expense (recovery)													62			(595	)

Net Earnings (Loss)												$	317		$	(1,236	)

Intersegment Information
	Market Optimization
	Marketing Sales					Upstream Eliminations						Total
	2016			2015		2016			2015			2016			2015

Revenues, Net of Royalties	$	963		$	1,063	$	(749	)	$	(997	)	$	214		$	66

Expenses
Transportation and processing		65			77		(43	)		(77	)		22			-
Operating		11			4		-			-			11			4
Purchased product		904			980		(707	)		(920	)		197			60

Operating Cash Flow	$	(17	)	$	2	$	1		$	-		$	(16	)	$	2

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

3. Segmented Information (continued)

Results of Operations (For the nine months ended September 30)

Segment and Geographic Information


	Canadian Operations					USA Operations						Market Optimization
	2016			2015		2016			2015			2016			2015

Revenues, Net of Royalties	$	792		$	1,410	$	1,327		$	1,872		$	393		$	293

Expenses
Production, mineral and other taxes		17			22		56			91			-			-
Transportation and processing		440			496		214			454			65			-
Operating		115			108		293			399			25			28
Purchased product		-			-		-			-			349			260

		220			784		764			928			(46	)		5
Depreciation, depletion and amortization		203			237		414			902			-			-
Impairments		493			-		903			5,668			-			-


	$	(476	)	$	547	$	(553	)	$	(5,642	)	$	(46	)	$	5



						Corporate & Other						Consolidated
						2016			2015			2016			2015

Revenues, Net of Royalties						$	(416	)	$	(184	)	$	2,096		$	3,391

Expenses
Production, mineral and other taxes							-			-			73			113
Transportation and processing							(4	)		4			715			954
Operating							13			17			446			552
Purchased product							-			-			349			260

							(425	)		(205	)		513			1,512
Depreciation, depletion and amortization							58			73			675			1,212
Impairments							-			-			1,396			5,668

						$	(483	)	$	(278	)		(1,558	)		(5,368	)

Accretion of asset retirement obligation													38			34
Administrative													231			217
Interest													309			508
Foreign exchange (gain) loss, net													(307	)		918
(Gain) loss on divestitures													(393	)		(14	)
Other													(67	)		2

													(189	)		1,665

Net Earnings (Loss) Before Income Tax													(1,369	)		(7,033	)
Income tax expense (recovery)													(706	)		(2,480	)

Net Earnings (Loss)												$	(663	)	$	(4,553	)

Intersegment Information
	Market Optimization
	Marketing Sales					Upstream Eliminations						Total
	2016			2015		2016			2015			2016			2015

Revenues, Net of Royalties	$	2,365		$	3,345	$	(1,972	)	$	(3,052	)	$	393		$	293

Expenses
Transportation and processing		219			261		(154	)		(261	)		65			-
Operating		25			28		-			-			25			28
Purchased product		2,167			3,051		(1,818	)		(2,791	)		349			260


Operating Cash Flow	$	(46	)	$	5	$	-		$	-		$	(46	)	$	5

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

3. Segmented Information (continued)

Capital Expenditures


					Three Months Ended September 30,				Nine Months Ended September 30,
					2016		2015		2016		2015

Canadian Operations					$	56	$	76	$	173	$	341

USA Operations						149		394		605		1,605

Market Optimization						1		1		1		1

Corporate & Other						(1)		2		-		5


					$	205	$	473	$	779	$	1,952

Goodwill, Property, Plant and Equipment and Total Assets by Segment
	Goodwill				Property, Plant and Equipment				Total Assets ⁽¹⁾
	As at				As at				As at
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015

Canadian Operations	$	666	$	661	$	597	$	1,100	$	1,511	$	2,036

USA Operations		2,129		2,129		5,870		7,249		9,503		10,405

Market Optimization		-		-		2		1		115		95

Corporate & Other		-		-		1,535		1,507		3,448		3,078


	$	2,795	$	2,790	$	8,004	$	9,857	$	14,577	$	15,614

⁽¹⁾	Total Assets for 2015 has been restated due to the adoption of ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, as described in Note 2.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

4. Acquisitions and Divestitures


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Acquisitions
Canadian Operations	$	1		$	-		$	1		$	1
USA Operations		66			-			68			3
Corporate & Other		-			-			-			34

Total Acquisitions		67			-			69			38


Divestitures
Canadian Operations		(457	)		(56	)		(457	)		(935	)
USA Operations		(650	)		(43	)		(656	)		(127	)
Corporate & Other		-			-			-			(53	)

Total Divestitures		(1,107	)		(99	)		(1,113	)		(1,115	)

Net Acquisitions & (Divestitures)	$	(1,040	)	$	(99	)	$	(1,044	)	$	(1,077	)

Acquisitions

During the three and nine months ended September 30, 2016, acquisitions primarily included the purchase of land and property in Eagle Ford with oil and liquids rich potential.

Divestitures

For the three and nine months ended September 30, 2016, divestitures in the Canadian Operations were $457 million, which primarily included the sale of the Gordondale assets in Montney located in northwestern Alberta for approximately C$603 million ($458 million), after closing adjustments. For the three and nine months ended September 30, 2015, divestitures in the Canadian Operations were $56 million and $935 million, respectively. Divestitures primarily included the sale of certain assets 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 Montney located in northeastern British Columbia for proceeds of approximately C$453 million ($357 million), after closing adjustments and the sale of certain properties that did not complement Encana’s existing portfolio of assets.

For the three and nine months ended September 30, 2016, divestitures in the USA Operations were $650 million and $656 million, respectively, which primarily included the sale of the DJ Basin assets located in northern Colorado for approximately $628 million, after closing and other adjustments. For the three and nine months ended September 30, 2015, divestitures in the USA Operations were $43 million and $127 million, respectively, which primarily included the sale of certain properties that did not complement Encana’s existing portfolio of assets.

Amounts received from the Company’s divestiture transactions have been deducted from the respective Canadian and U.S. full cost pools, except for divestitures that result in a significant alteration between capitalized costs and proved reserves in a country cost centre. For divestitures that result in a gain or loss and constitute a business, goodwill is allocated to the divestiture. Accordingly, for the three and nine months ended September 30, 2016, Encana recognized a gain of approximately $397 million, before tax, on the sale of the Company’s Gordondale assets in the Canadian cost centre and allocated goodwill of $32 million.

For the nine months ended September 30, 2015, Corporate and Other acquisitions and divestitures primarily included the purchase and subsequent sale of the Encana Place office building located in Calgary, which resulted in a gain on divestiture of approximately $12 million.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

5. Interest


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015

Interest Expense on:
Debt	$	72	$	77	$	229	$	420
The Bow office building		16		15		47		49
Capital leases		6		7		18		22
Other		5		6		15		17

	$	99	$	105	$	309	$	508

Interest Expense on Debt for the nine months ended September 30, 2015 included a one-time interest payment of approximately $165 million resulting from the April 2015 early redemption of the Company’s $700 million 5.90 percent notes due December 1, 2017 and C$750 million 5.80 percent medium-term notes due January 18, 2018.

6. Foreign Exchange (Gain) Loss, Net


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Unrealized Foreign Exchange (Gain) Loss on:
Translation of U.S. dollar debt issued from Canada	$	44		$	297		$	(233	)	$	638
Translation of U.S. dollar risk management contracts issued from Canada		(1	)		(27	)		5			(56	)
Translation of intercompany notes		4			(29	)		5			(27	)

		47			241			(223	)		555
Foreign Exchange on Settlements		(4	)		102			(89	)		337
Other Monetary Revaluations		6			5			5			26

	$	49		$	348		$	(307	)	$	918

7. Income Taxes


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Current Tax
Canada	$	(15	)	$	1		$	(28	)	$	(24	)
United States		-			(22	)		-			(19	)
Other countries		1			2			5			5

Total Current Tax Expense (Recovery)		(14	)		(19	)		(23	)		(38	)


Deferred Tax
Canada		154			(138	)		(204	)		(616	)
United States		(98	)		(471	)		(706	)		(2,110	)
Other countries		20			33			227			284

Total Deferred Tax Expense (Recovery)		76			(576	)		(683	)		(2,442	)

Income Tax Expense (Recovery)	$	62		$	(595	)	$	(706	)	$	(2,480	)

Encana’s interim income tax expense is determined using an estimated annual effective income tax rate applied to year-to-date net earnings before income tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by the expected annual earnings, statutory rate and other foreign differences, non-taxable capital gains and losses, tax differences on divestitures and transactions, and partnership tax allocations in excess of funding.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

8. Property, Plant and Equipment, Net


	As at September 30, 2016							As at December 31, 2015
	Cost		Accumulated DD&A⁽¹⁾			Net		Cost		Accumulated DD&A⁽¹⁾			Net

Canadian Operations
Proved properties	$	13,381	$	(13,142	)	$	239	$	14,866	$	(14,170	)	$	696
Unproved properties		304		-			304		334		-			334
Other		54		-			54		70		-			70

		13,739		(13,142	)		597		15,270		(14,170	)		1,100


USA Operations
Proved properties		25,939		(25,149	)		790		25,723		(23,822	)		1,901
Unproved properties		5,035		-			5,035		5,282		-			5,282
Other		45		-			45		66		-			66

		31,019		(25,149	)		5,870		31,071		(23,822	)		7,249


Market Optimization		6		(4	)		2		5		(4	)		1
Corporate & Other		2,200		(665	)		1,535		2,098		(591	)		1,507

	$	46,964	$	(38,960	)	$	8,004	$	48,444	$	(38,587	)	$	9,857

⁽¹⁾	Depreciation, depletion and amortization.

Canadian Operations and USA Operations property, plant and equipment include internal costs directly related to exploration, development and construction activities of $119 million, which have been capitalized during the nine months ended September 30, 2016 (2015 - $170 million). Included in Corporate and Other are $61 million ($58 million as at December 31, 2015) of international property costs, which have been fully impaired.

For the three months ended September 30, 2016, the Company did not recognize ceiling test impairments in the Canadian cost centre (2015 - nil) or in the U.S. cost centre (2015 - $1,671 million before tax). For the nine months ended September 30, 2016, the Company recognized before-tax ceiling test impairments of $493 million (2015 - nil) in the Canadian cost centre and $903 million (2015 - $5,668 million) in the U.S. cost centre. The impairments are included within accumulated DD&A in the table above and resulted primarily from the decline in the 12-month average trailing prices which reduced proved reserves volumes and values.

The 12-month average trailing prices used in the ceiling test calculations were based on the benchmark prices below. The benchmark prices were adjusted for basis differentials to determine local reference prices, transportation costs and tariffs, heat content and quality.

Natural Gas

Oil & NGLs

Henry Hub
($/MMBtu)

AECO
(C$/MMBtu)

WTI
($/bbl)

Edmonton
Light Sweet
(C$/bbl)

12-Month Average Trailing Reserves Pricing September 30, 2016

2.28

2.05

41.68

50.96

December 31, 2015

2.58

2.69

50.28

58.82

September 30, 2015

3.05

3.02

59.21

65.69

Capital Lease Arrangements

The Company has several lease arrangements that are accounted for as capital leases including an office building and an offshore production platform.

As at September 30, 2016, the total carrying value of assets under capital lease was $52 million ($376 million as at December 31, 2015), net of accumulated amortization of $657 million ($310 million as at December 31, 2015). Liabilities for the capital lease arrangements are included in other liabilities and provisions in the Condensed Consolidated Balance Sheet and are disclosed in Note 10.

Other Arrangement

As at September 30, 2016, Corporate and Other property, plant and equipment and total assets include a carrying value of $1,227 million ($1,179 million as at December 31, 2015) related to The Bow office building, which is under a 25-year lease agreement. The Bow asset is being depreciated over the 60-year estimated life of the building. At the conclusion of the 25-year term in 2037, the remaining asset and corresponding liability are expected to be derecognized as disclosed in Note 10.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

9. Long-Term Debt


	As at September 30, 2016			As at December 31, 2015

U.S. Dollar Denominated Debt
Revolving credit and term loan borrowings	$	-		$	650
U.S. Unsecured Notes
6.50% due May 15, 2019		500			500
3.90% due November 15, 2021		600			600
8.125% due September 15, 2030		300			300
7.20% due November 1, 2031		350			350
7.375% due November 1, 2031		500			500
6.50% due August 15, 2034		750			750
6.625% due August 15, 2037 ⁽¹⁾		462			500
6.50% due February 1, 2038 ⁽¹⁾		505			800
5.15% due November 15, 2041 ⁽¹⁾		244			400

Total Principal		4,211			5,350

Increase in Value of Debt Acquired		27			27
Unamortized Debt Discounts and Issuance Costs ⁽²⁾		(40	)		(44	)
Current Portion of Long-Term Debt		-			-

	$	4,198		$	5,333

⁽¹⁾	Notes accepted for purchase in the March 2016 Tender Offers.

⁽²⁾	Long-Term Debt for 2015 has been restated due to the adoption of ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, as described in Note 2.

As at September 30, 2016, total long-term debt had a carrying value of $4,198 million and a fair value of $4,440 million (as at December 31, 2015 - carrying value of $5,333 million and a fair value of $4,630 million). The estimated fair value of long-term borrowings is categorized within Level 2 of the fair value hierarchy and has been determined based on market information, or by discounting future payments of interest and principal at interest rates expected to be available to the Company at period end.

On March 16, 2016, Encana announced tender offers (collectively, the “Tender Offers”) for certain of the Company’s outstanding senior notes (collectively, the “Notes”). The Tender Offers were for an aggregate purchase price of $250 million, excluding accrued and unpaid interest. The consideration for each $1,000 principal amount of Notes validly tendered and accepted for purchase included an early tender premium of $30 per $1,000 principal amount of Notes accepted for purchase, provided the Notes were validly tendered at or prior to the early tender date of March 29, 2016. All Notes validly tendered and accepted for purchase also received accrued and unpaid interest up to the settlement date.

On March 30, 2016, Encana announced an increase in the aggregate purchase price of the Tender Offers to $400 million, excluding accrued and unpaid interest, and accepted for purchase: i) $156 million aggregate principal amount of 5.15 percent notes due 2041; ii) $295 million aggregate principal amount of 6.50 percent notes due 2038; and iii) $38 million aggregate principal amount of 6.625 percent notes due 2037. The Company paid an aggregate amount of $406 million, including accrued and unpaid interest of $6 million and an early tender premium of $14 million, for Notes accepted for purchase. The Company used cash on hand and borrowings under its revolving credit facility to fund the Tender Offers.

Encana also recognized a gain on the early debt retirement of $103 million, before tax, representing the difference between the carrying amount of the Notes accepted for purchase and the consideration paid. The gain on the early debt retirement net of the early tender premium totals $89 million, which is included in other expenses in the Condensed Consolidated Statement of Earnings.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

10. Other Liabilities and Provisions


	As at September 30, 2016		As at December 31, 2015

The Bow Office Building	$	1,299	$	1,238
Capital Lease Obligations		325		353
Unrecognized Tax Benefits		185		189
Pensions and Other Post-Employment Benefits		133		115
Long-Term Incentives (See Note 16)		82		23
Other Derivative Contracts (See Notes 18, 19)		19		23
Other		28		34

	$	2,071	$	1,975

The Bow Office Building

As described in Note 8, Encana has recognized the accumulated costs for The Bow office building, which is under a 25-year lease agreement. At the conclusion of the 25-year term, the remaining asset and corresponding liability are expected to be derecognized. Encana has also subleased part of The Bow office space to a subsidiary of Cenovus Energy Inc. (“Cenovus”). The total undiscounted future payments related to the lease agreement and the total undiscounted future amounts expected to be recovered from the Cenovus sublease are outlined below.


(undiscounted)	2016			2017			2018			2019			2020			Thereafter			Total

Expected Future Lease Payments	$	18		$	72		$	73		$	73		$	74		$	1,388		$	1,698

Sublease Recoveries	$	(9	)	$	(35	)	$	(36	)	$	(36	)	$	(36	)	$	(682	)	$	(834	)

Capital Lease Obligations

As described in Note 8, the Company has several lease arrangements that are accounted for as capital leases including an office building and the Deep Panuke offshore Production Field Centre (“PFC”). Variable interests related to the PFC are described in Note 14.

The total expected future lease payments related to the Company’s capital lease obligations are outlined below.


	2016		2017		2018		2019		2020		Thereafter		Total

Expected Future Lease Payments	$	25	$	98	$	99	$	99	$	99	$	133	$	553
Less Amounts Representing
Interest		11		38		35		31		27		27		169

Present Value of Expected
Future Lease Payments	$	14	$	60	$	64	$	68	$	72	$	106	$	384

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

11. Asset Retirement Obligation


	As at September 30, 2016			As at December 31, 2015

Asset Retirement Obligation, Beginning of Year	$	814		$	913
Liabilities Incurred and Acquired		6			19
Liabilities Settled and Divested		(96	)		(217	)
Change in Estimated Future Cash Outflows		-			115
Accretion Expense		38			45
Foreign Currency Translation		18			(61	)

Asset Retirement Obligation, End of Period	$	780		$	814


Current Portion	$	40		$	41
Long-Term Portion		740			773

	$	780		$	814

12. Share Capital

Authorized

The Company is authorized to issue an unlimited number of no par value common shares and Class A Preferred Shares limited to a number equal to not more than 20 percent of the issued and outstanding number of common shares at the time of issuance.

Issued and Outstanding


	As at September 30, 2016				As at December 31, 2015
	Number (millions)		Amount		Number (millions)		Amount

Common Shares Outstanding, Beginning of Year		849.8	$	3,621		741.2	$	2,450
Common Shares Issued		107.0		986		98.4		1,098
Common Shares Issued Under Dividend Reinvestment Plan		0.1		1		10.2		73

Common Shares Outstanding, End of Period		956.9	$	4,608		849.8	$	3,621

During the nine months ended September 30, 2016, Encana issued 112,477 common shares totaling $0.8 million under the Company’s dividend reinvestment plan (“DRIP”). During the twelve months ended December 31, 2015, Encana issued 10,246,221 common shares totaling $73 million under the DRIP.

On September 23, 2016, Encana completed a public offering (the “2016 Share Offering”) of 107,000,000 common shares of Encana at a price of $9.35 per common share for gross proceeds of approximately $1.0 billion. After deducting underwriter’s fees and costs of the 2016 Share Offering, the net cash proceeds received were approximately $981 million. Pursuant to the 2016 Share Offering, Encana also granted the underwriters an over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 16,050,000 common shares at a price of $9.35 per common share. On October 4, 2016, the Over-Allotment Option was exercised in full for additional gross proceeds of approximately $150 million.

On March 5, 2015, Encana filed a prospectus supplement (the “2015 Share Offering”) to the Company’s base shelf prospectus for the issuance of 85,616,500 common shares and granted an over-allotment option for up to an additional 12,842,475 common shares at a price of C$14.60 per common share, pursuant to an underwriting agreement. The aggregate gross proceeds from the 2015 Share Offering were approximately C$1.44 billion ($1.13 billion). After deducting underwriter’s fees and costs of the 2015 Share Offering, the net cash proceeds received were approximately C$1.39 billion ($1.09 billion).

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

12. Share Capital (continued)

Dividends

During the three months ended September 30, 2016, Encana paid dividends of $0.015 per common share totaling $13 million (2015 - $0.07 per common share totaling $59 million). During the nine months ended September 30, 2016, Encana paid dividends of $0.045 per common share totaling $38 million (2015 - $0.21 per common share totaling $166 million). Common shares issued as part of the 2016 Share Offering and 2015 Share Offering described above were not eligible to receive the dividend paid on September 30, 2016 and March 31, 2015, respectively.

For the three and nine months ended September 30, 2016, the dividends paid included $0.2 million and $0.8 million, respectively, in common shares issued in lieu of cash dividends under the DRIP (for the three and nine months ended September 30, 2015 - $21 million and $53 million, respectively).

Earnings Per Common Share

The following table presents the computation of net earnings per common share:


	Three Months Ended September 30,					Nine Months Ended September 30,
(millions, except per share amounts)	2016		2015			2016			2015

Net Earnings (Loss)	$	317	$	(1,236	)	$	(663	)	$	(4,553	)

Number of Common Shares:
Weighted average common shares outstanding - Basic		858.3		843.1			852.7			814.0
Effect of dilutive securities		-		-			-			-

Weighted average common shares outstanding - Diluted		858.3		843.1			852.7			814.0


Net Earnings (Loss) per Common Share
Basic	$	0.37	$	(1.47	)	$	(0.78	)	$	(5.59	)
Diluted	$	0.37	$	(1.47	)	$	(0.78	)	$	(5.59	)

Encana Stock Option Plan

Encana has share-based compensation plans that allow employees to purchase common shares of the Company. Option exercise prices are not less than the market value of the common shares on the date the options are granted. All options outstanding as at September 30, 2016 have associated Tandem Stock Appreciation Rights (“TSARs”) attached. In lieu of exercising the option, the associated TSARs give the option holder the right to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of the exercise over the original grant price.

In addition, certain stock options granted are performance-based whereby vesting is also subject to Encana attaining prescribed performance relative to predetermined key measures. Historically, most holders of options with TSARs have elected to exercise their stock options as a Stock Appreciation Right (“SAR”) in exchange for a cash payment. As a result, Encana does not consider outstanding TSARs to be potentially dilutive securities.

Encana Restricted Share Units (“RSUs”)

Encana has a share-based compensation plan whereby eligible employees are granted RSUs. An RSU is a conditional grant to receive an Encana common share, or the cash equivalent, as determined by Encana, upon vesting of the RSUs and in accordance with the terms of the RSU Plan and Grant Agreement. The Company intends to settle vested RSUs in cash on the vesting date. As a result, Encana does not consider RSUs to be potentially dilutive securities.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

13. Accumulated Other Comprehensive Income


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Foreign Currency Translation Adjustment
Balance, Beginning of Period	$	1,127		$	1,140		$	1,383		$	715
Current Period Change in Foreign Currency
Translation Adjustment		36			175			(220	)		600

Balance, End of Period	$	1,163		$	1,315		$	1,163		$	1,315


Pension and Other Post-Employment Benefit Plans
Balance, Beginning of Period	$	7		$	(25	)	$	7		$	(26	)
Reclassification of Net Actuarial (Gains) and
Losses to Net Earnings (See Note 17)		(1	)		1			(1	)		2
Income Taxes		-			-			-			-

Balance, End of Period	$	6		$	(24	)	$	6		$	(24	)

Total Accumulated Other Comprehensive Income	$	1,169		$	1,291		$	1,169		$	1,291

14. Variable Interest Entities

Production Field Centre

In 2008, Encana entered into a contract for the design, construction and operation of the PFC at its Deep Panuke facility. Upon commencement of operations in December 2013, Encana recognized the PFC as a capital lease asset. Under the lease contract, Encana has a purchase option and the option to extend the lease for 12 one-year terms at fixed prices after the initial lease term expires in 2021.

As a result of the purchase option and fixed price renewal options, Encana has determined it holds variable interests and that the related leasing entity qualifies as a variable interest entity (“VIE”). Encana is not the primary beneficiary of the VIE as the Company does not have the power to direct the activities that most significantly impact the VIE’s economic performance. Encana is not required to provide any financial support or guarantees to the leasing entity or its affiliates, other than the contractual payments under the lease and operating agreements. Encana’s maximum exposure is the expected lease payments over the initial contract term. As at September 30, 2016, Encana had a capital lease obligation of $319 million ($340 million as at December 31, 2015) related to the PFC.

Veresen Midstream Limited Partnership

On March 31, 2015, Encana, along with the Cutbank Ridge Partnership (“CRP”), entered into natural gas gathering and compression agreements with Veresen Midstream Limited Partnership (“VMLP”), under an initial term of 30 years with two potential five-year renewal terms. As part of the agreement, VMLP agreed to undertake future expansion of midstream services if required by Encana and the CRP in support of the anticipated future development of the Montney play. In addition, VMLP provides to Encana and the CRP natural gas gathering and processing under agreements that were contributed to VMLP by its partner Veresen Inc., and have remaining terms of 16 years and up to a potential maximum of 10 one-year renewal terms.

Encana has determined that VMLP is a VIE and that Encana holds variable interests in VMLP. Encana is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly impact VMLP’s economic performance. These key activities relate to the construction, operation, maintenance and marketing of the assets owned by VMLP. The variable interests arise from certain terms under the long-term service agreements which include: i) a take or pay for volumes committed to certain gathering and processing assets; ii) an operating fee of which a portion can be converted into a fixed fee once VMLP assumes operatorship of certain compression assets; and iii) a potential payout of minimum costs associated with certain gathering and compression assets. The potential payout of minimum costs will be assessed in the eighth year of the assets’ service period and is based on whether there is an overall shortfall of total system cash flows from natural gas gathered and compressed under certain service agreements. The potential payout amount can be reduced in the event VMLP markets unutilized capacity to third party users. Encana is not required to provide any financial support or guarantees to VMLP.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

14. Variable Interest Entities (continued)

Veresen Midstream Limited Partnership (continued)

As a result of Encana’s involvement with VMLP, the maximum total exposure, which represents the potential exposure to Encana in the event the assets under the agreements are deemed worthless, is estimated to be $1,520 million as at September 30, 2016. The estimate comprises the take or pay volume commitments and the potential payout of minimum costs. The take or pay volume commitments associated with certain gathering and processing assets are included in Note 20 under Transportation and Processing. The potential payout requirement is highly uncertain as the amount is contingent on future production estimates, pace of development and the amount of capacity contracted to third parties. As at September 30, 2016, accounts payable and accrued liabilities included $0.2 million related to the take or pay commitment.

15. Restructuring Charges

In February 2016, Encana announced workforce reductions to better align staffing levels and the organizational structure with the Company’s reduced capital spending program as a result of the current low commodity price environment. Encana incurred total restructuring charges of $33 million, before tax, primarily related to severance costs, of which $6 million remains accrued as at September 30, 2016. The majority of the remaining amounts accrued are expected to be paid in 2017.

During the first quarter of 2015, Encana revised its plans to align the organizational structure in continued support of the Company’s strategy that was announced in 2013. During the nine months ended September 30, 2015, transition and severance costs of $59 million, before tax, were incurred.

Restructuring charges are included in administrative expense in the Condensed Consolidated Statement of Earnings.

16. Compensation Plans

Encana has a number of compensation arrangements under which the Company awards various types of long-term incentive grants to eligible employees. They include TSARs, Performance TSARs, SARs, Performance Share Units (“PSUs”), Deferred Share Units (“DSUs”) and RSUs. These compensation arrangements are share-based.

Encana accounts for TSARs, Performance TSARs, SARs, PSUs and RSUs held by employees as cash-settled share-based payment transactions and, accordingly, accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes-Merton and other fair value models.

As at September 30, 2016, the following weighted average assumptions were used to determine the fair value of the share units held by employees:


	US$ Share Units		C$ Share Units

Risk Free Interest Rate		0.49%		0.49%
Dividend Yield		0.57%		0.58%
Expected Volatility Rate		56.11%		52.27%
Expected Term		1.6 yrs		1.8 yrs
Market Share Price		US$10.47		C$13.71

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

16. Compensation Plans (continued)

The Company has recognized the following share-based compensation costs:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Total Compensation Costs of Transactions Classified as Cash-Settled	$	68		$	(31	)	$	114		$	(24	)
Less: Total Share-Based Compensation Costs Capitalized		(15	)		11			(25	)		9

Total Share-Based Compensation Expense	$	53		$	(20	)	$	89		$	(15	)


Recognized on the Condensed Consolidated Statement of Earnings in:
Operating expense	$	18		$	(7	)	$	31		$	(6	)
Administrative expense		35			(13	)		58			(9	)

	$	53		$	(20	)	$	89		$	(15	)

As at September 30, 2016, the liability for share-based payment transactions totaled $151 million ($51 million as at December 31, 2015), of which $69 million ($28 million as at December 31, 2015) is recognized in accounts payable and accrued liabilities and $82 million ($23 million as at December 31, 2015) is recognized in other liabilities and provisions in the Condensed Consolidated Balance Sheet.


	As at September 30, 2016		As at December 31, 2015

Liability for Cash-Settled Share-Based Payment Transactions:
Unvested	$	121	$	47
Vested		30		4

	$	151	$	51

The following units were granted primarily in conjunction with the Company’s March annual long-term incentive award. The TSARs and SARs were granted at the volume-weighted average trading price of Encana’s common shares for the five days prior to the grant date.


Nine Months Ended September 30, 2016 (thousands of units)

TSARs			4,277
SARs			1,453
PSUs			5,853
DSUs			181
RSUs			15,158

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

17. Pension and Other Post-Employment Benefits

The Company has recognized total benefit plans expense which includes pension benefits and other post-employment benefits (“OPEB”) for the nine months ended September 30 as follows:


	Pension Benefits					OPEB				Total
	2016			2015		2016		2015		2016		2015

Defined Benefit Plan Expense	$	(1	)	$	1	$	10	$	11	$	9	$	12
Defined Contribution Plan Expense		21			23		-		-		21		23

Total Benefit Plans Expense	$	20		$	24	$	10	$	11	$	30	$	35

Of the total benefit plans expense, $23 million (2015 - $28 million) was included in operating expense and $7 million (2015 - $7 million) was included in administrative expense.

The defined periodic pension and OPEB expense for the nine months ended September 30 are as follows:


	Pension Benefits						OPEB					Total
	2016			2015			2016			2015		2016			2015

Current Service Costs	$	1		$	2		$	8		$	8	$	9		$	10
Interest Cost		6			7			3			3		9			10
Expected Return On Plan Assets		(8	)		(10	)		-			-		(8	)		(10	)
Amounts Reclassified From Accumulated Other
Comprehensive Income:
Amortization of net actuarial (gains) and losses		-			2			(1	)		-		(1	)		2

Total Defined Benefit Plan Expense	$	(1	)	$	1		$	10		$	11	$	9		$	12

The amounts recognized in other comprehensive income for the nine months ended September 30 are as follows:


	Pension Benefits					OPEB				Total
	2016		2015			2016		2015		2016		2015

Total Amounts Recognized in Other
Comprehensive (Income) Loss, Before Tax	$	-	$	(2	)	$	1	$	-	$	1	$	(2	)

Total Amounts Recognized in Other
Comprehensive (Income) Loss, After Tax	$	-	$	(2	)	$	1	$	-	$	1	$	(2	)

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

18. Fair Value Measurements

The fair values of cash and cash equivalents, accounts receivable and accrued revenues, and accounts payable and accrued liabilities approximate their carrying amounts due to the short-term maturity of those instruments. The fair value of cash in reserve approximates its carrying amount due to the nature of the instrument held.

Recurring fair value measurements are performed for risk management assets and liabilities and other derivative liabilities, as discussed further in Note 19. These items are carried at fair value in the Condensed Consolidated Balance Sheet and are classified within the three levels of the fair value hierarchy in the tables below. There have been no significant transfers between the hierarchy levels during the period.


As at September 30, 2016	Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount

Risk Management
Risk Management Assets
Current	$	-	$	37	$	10	$	47	$	(32	)	$	15
Long-term		-		8		-		8		(7	)		1
Risk Management Liabilities
Current		-		126		14		140		(32	)		108
Long-term		-		30		4		34		(7	)		27

Other Derivative Liabilities
Current in accounts payable and accrued liabilities	$	-	$	6	$	-	$	6	$	-		$	6
Long-term in other liabilities and provisions		-		19		-		19		-			19


As at December 31, 2015	Level 1 Quoted Prices in Active Markets		Level 2 Other Observable Inputs		Level 3 Significant Unobservable Inputs		Total Fair Value		Netting ⁽¹⁾			Carrying Amount

Risk Management
Risk Management Assets
Current	$	1	$	356	$	37	$	394	$	(27	)	$	367
Long-term		-		11		-		11		-			11
Risk Management Liabilities
Current		-		31		12		43		(27	)		16
Long-term		-		-		9		9		-			9

Other Derivative Liabilities
Current in accounts payable and accrued liabilities	$	-	$	6	$	-	$	6	$	-		$	6
Long-term in other liabilities and provisions		-		23		-		23		-			23

⁽¹⁾

Netting to offset derivative assets and liabilities where the legal right and intention to offset exists, or where counterparty master netting arrangements contain provisions for net settlement.

The Company’s Level 1 and Level 2 risk management assets and liabilities consist of commodity fixed price contracts, NYMEX fixed price swaptions, NYMEX three-way options, NYMEX costless collars, WTI-based fixed price swaptions and basis swaps with terms to 2020. Level 2 also includes other derivative liabilities as discussed in Note 19. The fair values of these contracts are based on a market approach and are estimated using inputs which are either directly or indirectly observable at the reporting date, such as exchange and other published prices, broker quotes and observable trading activity.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

18. Fair Value Measurements (continued)

Level 3 Fair Value Measurements

As at September 30, 2016, the Company’s Level 3 risk management assets and liabilities consist of power purchase contracts and WTI three-way options with terms to 2017. The fair values of the power purchase contracts are based on the income approach and are modelled internally using observable and unobservable inputs such as forward power prices in less active markets. The WTI three-way options are a combination of a sold call, bought put and a sold put. These contracts allow the Company to participate in the upside of commodity prices to the ceiling of the call option and provide the Company with partial downside price protection through the combination of the put options. The fair values of the WTI three-way options are based on the income approach and are modelled using observable and unobservable inputs such as implied volatility. The unobservable inputs are obtained from third parties whenever possible and reviewed by the Company for reasonableness.

Changes in amounts related to risk management assets and liabilities are recognized in revenues and transportation and processing expense according to their purpose.

A summary of changes in Level 3 fair value measurements for the nine months ended September 30 is presented below:


	Risk Management
	2016			2015

Balance, Beginning of Year	$	16		$	(18	)
Total Gains (Losses)		4			(12	)
Purchases and Settlements:
Purchases		-			16
Settlements		(18	)		11
Transfers out of Level 3 ⁽¹⁾		(10	)		-

Balance, End of Period	$	(8	)	$	(3	)

Change in unrealized gains (losses) related to
assets and liabilities held at end of period	$	(6	)	$	7

⁽¹⁾	The Company’s policy is to recognize transfers out of Level 3 on the date of the event of change in circumstances that caused the transfer.

Quantitative information about unobservable inputs used in Level 3 fair value measurements is presented below:


	Valuation Technique	Unobservable Input	As at September 30, 2016	As at December 31, 2015
Risk Management - Power	Discounted Cash Flow	Forward prices ($/Megawatt Hour)	$29.92 - $31.38	$34.50 - $40.25

Risk Management - WTI Three-Way Options	Option Model	Implied Volatility	24% - 49%	33% - 64%

A 10 percent increase or decrease in estimated forward power prices would cause a corresponding $2 million ($4 million as at December 31, 2015) increase or decrease to net risk management assets and liabilities. A 10 percent increase or decrease in implied volatility for the WTI three-way options would cause a corresponding $2 million ($2 million as at December 31, 2015) increase or decrease to net risk management assets and liabilities.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

19. Financial Instruments and Risk Management

A) Financial Instruments

Encana’s financial assets and liabilities are recognized in cash and cash equivalents, accounts receivable and accrued revenues, cash in reserve, accounts payable and accrued liabilities, risk management assets and liabilities, other liabilities and provisions and long-term debt.

B) Risk Management Assets and Liabilities

Risk management assets and liabilities arise from the use of derivative financial instruments and are measured at fair value. See Note 18 for a discussion of fair value measurements.


Unrealized Risk Management Position	As at September 30, 2016			As at December 31, 2015

Risk Management Assets
Current	$	15		$	367
Long-term		1			11

		16			378


Risk Management Liabilities
Current		108			16
Long-term		27			9

		135			25


Other Derivative Liabilities
Current in accounts payable and accrued liabilities		6			6
Long-term in other liabilities and provisions		19			23

Net Risk Management Assets (Liabilities) and Other Derivative Liabilities	$	(144	)	$	324

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

19. Financial Instruments and Risk Management (continued)

B) Risk Management Assets and Liabilities (continued)

Commodity Price Positions as at September 30, 2016

Notional Volumes

Term

Average Price

Fair Value

Natural Gas Contracts

Fixed Price Contracts

NYMEX Fixed Price

791 MMcf/d

2016

2.72 US$/Mcf

(20

)

350 MMcf/d

Q1 2017

3.07 US$/Mcf

)

NYMEX Fixed Price Swaptions ⁽¹⁾

345 MMcf/d

2017

2.70 US$/Mcf

(54

)

NYMEX Three-Way Options

300 MMcf/d

2017

(23

)

Sold call price

3.07 US$/Mcf

Bought put price

2.75 US$/Mcf

Sold put price

2.27 US$/Mcf

NYMEX Costless Collars

335 MMcf/d

2016

(17

)

Sold call price

2.46 US$/Mcf

Bought put price

2.22 US$/Mcf

NYMEX Costless Collars

100 MMcf/d

Q2 - Q4 2017

Sold call price

3.55 US$/Mcf

Bought put price

2.75 US$/Mcf

Basis Contracts⁽²⁾

2016-2020

Other Financial Positions

)

Natural Gas Fair Value Position

(119

)

Crude Oil and NGLs Contracts

Fixed Price Contracts

WTI Fixed Price

42.0 Mbbls/d

2016

55.18 US$/bbl

15.5 Mbbls/d

2017

49.49 US$/bbl

(11

)

WTI Fixed Price Swaptions ⁽³⁾

10.0 Mbbls/d

Q2 2017

50.86 US$/bbl

)

WTI Three-Way Options

23.5 Mbbls/d

2016

Sold call price

62.96 US$/bbl

Bought put price

55.00 US$/bbl

Sold put price

47.04 US$/bbl

WTI Three-Way Options

15.0 Mbbls/d

2017

Sold call price

59.03 US$/bbl

Bought put price

48.48 US$/bbl

Sold put price

37.35 US$/bbl

Basis Contracts ⁽⁴⁾

2016-2019

Crude Oil and NGLs Fair Value Position

Power Purchase Contracts and Other Derivative Contracts

Fair Value Position

(43

)

Total Fair Value Position

(144

)

⁽¹⁾	NYMEX Fixed Price Swaptions give the counterparty the option to extend 2016 fixed price swaps to December 31, 2017 at the strike price.

⁽²⁾	Encana has entered into swaps to protect against widening natural gas price differentials between benchmark and regional sales prices.

⁽³⁾	WTI Fixed Price Swaptions give the counterparty the option to extend Q1 2017 fixed price swaps to June 30, 2017 at the strike price.

⁽⁴⁾	Encana has entered into swaps to protect against widening Midland and NGL differentials to WTI.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

19. Financial Instruments and Risk Management (continued)

B) Risk Management Assets and Liabilities (continued)

Earnings Impact of Realized and Unrealized Gains (Losses) on Risk Management Positions


	Realized Gain (Loss)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Revenues, Net of Royalties	$	54		$	217		$	358		$	626
Transportation and Processing		-			(4	)		(4	)		(12	)

Gain (Loss) on Risk Management	$	54		$	213		$	354		$	614


	Unrealized Gain (Loss)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Revenues, Net of Royalties	$	42		$	184		$	(469	)	$	(237	)
Transportation and Processing		(1	)		(11	)		4			(4	)

Gain (Loss) on Risk Management	$	41		$	173		$	(465	)	$	(241	)

Reconciliation of Unrealized Risk Management Positions from January 1 to September 30


	2016						2015
	Fair Value			Total Unrealized Gain (Loss)			Total Unrealized Gain (Loss)

Fair Value of Contracts, Beginning of Year	$	324
Change in Fair Value of Contracts in Place at Beginning of Year and Contracts Entered into During the Period		(111	)	$	(111	)	$	373
Foreign Exchange Translation Adjustment on Canadian Dollar Contracts		(1	)
Settlement of Acquired Crude Oil Contracts		(6	)
Settlement of Other Derivative Contracts		4
Fair Value of Contracts Realized During the Period		(354	)		(354	)		(614	)

Fair Value of Contracts, End of Period	$	(144	)	$	(465	)	$	(241	)

C) Risks Associated with Financial Assets and Liabilities

The Company is exposed to financial risks including market risks (such as commodity prices, foreign exchange and interest rates), credit risk and liquidity risk. Future cash flows may fluctuate due to movement in market prices and the exposure to credit and liquidity risks.

Commodity Price Risk

Commodity price risk arises from the effect fluctuations in future commodity prices may have on future cash flows. To partially mitigate exposure to commodity price risk, the Company has entered into various derivative financial instruments. The use of these derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors. The Company’s policy is to not use derivative financial instruments for speculative purposes.

Natural Gas - To partially mitigate natural gas commodity price risk, the Company uses NYMEX-based contracts such as fixed price contracts, fixed price swaptions, options and costless collars. Encana also enters into basis swaps to manage against widening price differentials between various production areas and various sales points.

Crude Oil and NGLs - To partially mitigate crude oil and NGLs commodity price risk, the Company uses WTI-based contracts such as fixed price contracts, fixed price swaptions and options. Encana also enters into basis swaps to manage against widening price differentials between various production areas and various sales points.

Power - The Company has entered into Canadian dollar denominated derivative contracts to manage its electricity consumption costs.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

19. Financial Instruments and Risk Management (continued)

C) Risks Associated with Financial Assets and Liabilities (continued)

Commodity Price Risk (continued)

The table below summarizes the sensitivity of the fair value of the Company’s risk management positions to fluctuations in commodity prices, with all other variables held constant. The Company has used a 10 percent variability to assess the potential impact of commodity price changes. Fluctuations in commodity prices could have resulted in unrealized gains (losses) impacting pre-tax net earnings for the nine months ended September 30 as follows:


	2016						2015
	10% Price Increase			10% Price Decrease			10% Price Increase			10% Price Decrease

Natural Gas Price	$	(81	)	$	72		$	(40	)	$	37
Crude Oil Price		(73	)		68			(128	)		122
Power Price		2			(2	)		4			(4	)

Credit Risk

Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. This credit risk exposure is mitigated through the use of Board-approved credit policies governing the Company’s credit portfolio including credit practices that limit transactions according to counterparties’ credit quality. Mitigation strategies may include master netting arrangements, requesting collateral and/or transacting credit derivatives. The Company executes commodity derivative financial instruments under master agreements that have netting provisions that provide for offsetting payables against receivables. As at September 30, 2016, the Company had no significant credit derivatives in place and held no collateral balances.

As at September 30, 2016, cash equivalents include high-grade, short-term securities, placed primarily with financial institutions and companies with strong investment grade ratings. Any foreign currency agreements entered into are with major financial institutions in Canada and the U.S. or with counterparties having investment grade credit ratings.

A substantial portion of the Company’s accounts receivable are with customers in the oil and gas industry and are subject to normal industry credit risks. As at September 30, 2016, approximately 89 percent (95 percent as at December 31, 2015) of Encana’s accounts receivable and financial derivative credit exposures were with investment grade counterparties.

As at September 30, 2016, Encana had three counterparties whose net settlement position individually accounted for more than 10 percent of the fair value of the outstanding in-the-money net risk management contracts by counterparty. As at September 30, 2016, these counterparties accounted for 38 percent, 26 percent and 16 percent of the fair value of the outstanding in-the-money net risk management contracts. As at December 31, 2015, Encana had two counterparties whose net settlement position accounted for 13 percent and 11 percent of the fair value of the outstanding in-the-money net risk management contracts.

During 2015, Encana entered into agreements resulting from divestitures, which may require Encana to fulfill certain payment obligations on the take or pay volume commitments assumed by the purchaser. The circumstances that would require Encana to perform under the agreement includes events where the purchaser fails to make payment to the guaranteed party and/or the purchaser is subject to an insolvency event. The agreements have remaining terms from five to eight years with a fair value of $25 million ($29 million as at December 31, 2015). The maximum potential amount of undiscounted future payments is $394 million as at September 30, 2016, and is considered unlikely.

Liquidity Risk

Liquidity risk arises from the potential that the Company will encounter difficulties in meeting a demand to fund its financial liabilities as they come due. The Company manages liquidity risk using cash and debt management programs.

The Company has access to cash equivalents and a range of funding alternatives at competitive rates through committed revolving bank credit facilities and debt and equity capital markets. As at September 30, 2016, the Company had committed revolving bank credit facilities totaling $4.5 billion which included $3.0 billion on a revolving bank credit facility for Encana and $1.5 billion on a revolving bank credit facility for a U.S. subsidiary, both of which remained unused. The facilities remain committed through July 2020.

Encana also has accessible capacity under shelf prospectuses for up to $5.0 billion, or the equivalent in foreign currencies, the availability of which is dependent on certain eligibility requirements and market conditions, to issue debt and/or equity securities in Canada and/or the U.S.

The Company believes it has sufficient funding through the use of these facilities to meet foreseeable borrowing requirements.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

19. Financial Instruments and Risk Management (continued)

C) Risks Associated with Financial Assets and Liabilities (continued)

Liquidity Risk (continued)

The Company minimizes its liquidity risk by managing its capital structure. The Company’s capital structure consists of shareholders’ equity plus long-term debt, including the current portion. The Company’s objectives when managing its capital structure are to maintain financial flexibility to preserve Encana’s access to capital markets and its ability to meet financial obligations and to finance internally generated growth as well as potential acquisitions. To manage the capital structure, the Company may adjust capital spending, adjust dividends paid to shareholders, issue new shares, issue new debt or repay existing debt.

The timing of expected cash outflows relating to financial liabilities is outlined in the table below:


	Less Than 1 Year		1 - 3 Years		4 - 5 Years		6 - 9 Years		Thereafter		Total

Accounts Payable and Accrued Liabilities	$	1,166	$	-	$	-	$	-	$	-	$	1,166
Risk Management Liabilities		108		27		-		-		-		135
Long-Term Debt ⁽¹⁾		267		1,034		469		1,457		5,060		8,287
Other Liabilities and Provisions		-		14		1		4		-		19

⁽¹⁾	Principal and interest.

Foreign Exchange Risk

Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company’s financial assets or liabilities. As Encana operates primarily in North America, fluctuations in the exchange rate between the U.S. and Canadian dollars can have a significant effect on the Company’s reported results. Encana’s financial results are consolidated in Canadian dollars; however, the Company reports its results in U.S. dollars as most of its revenue is closely tied to the U.S. dollar and to facilitate a more direct comparison to other North American oil and gas companies. As the effects of foreign exchange fluctuations are embedded in the Company’s results, the total effect of foreign exchange fluctuations is not separately identifiable.

As at September 30, 2016, Encana had $4.2 billion in U.S. dollar debt issued from Canada that was subject to foreign exchange exposure ($5.4 billion as at December 31, 2015). To mitigate the exposure to the fluctuating U.S./Canadian dollar exchange rate, Encana may enter into foreign exchange derivatives. There were no foreign exchange derivatives outstanding as at September 30, 2016.

Encana’s foreign exchange (gain) loss primarily includes foreign exchange gains and losses on the translation and settlement of U.S. dollar denominated debt issued from Canada, unrealized foreign exchange gains and losses on the translation of U.S. dollar denominated risk management assets and liabilities held in Canada, foreign exchange gains and losses on the translation and settlement of foreign denominated intercompany balances and foreign exchange gains and losses on U.S. dollar denominated cash and short-term investments held in Canada. A $0.01 change in the U.S. to Canadian dollar exchange rate would have resulted in a $28 million change in foreign exchange (gain) loss as at September 30, 2016 (2015 - $47 million).

Interest Rate Risk

Interest rate risk arises from changes in market interest rates that may affect the fair value or future cash flows from the Company’s financial assets or liabilities. The Company may partially mitigate its exposure to interest rate changes by holding a mix of both fixed and floating rate debt and may also enter into interest rate derivatives to partially mitigate effects of fluctuations in market interest rates. There were no interest rate derivatives outstanding as at September 30, 2016.

As at September 30, 2016, the Company had no floating rate debt. As at September 30, 2015, the Company had floating rate debt of $1,414 million and the sensitivity in net earnings for each one percent change in interest rates on floating rate debt was $10 million.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Third quarter report

for the period ended September 30, 2016

Notes to Condensed Consolidated Financial Statements (unaudited)

(All amounts in $ millions unless otherwise specified)

20. Commitments and Contingencies

Commitments

The following table outlines the Company’s commitments as at September 30, 2016:


	Expected Future Payments
(undiscounted)	2016		2017		2018		2019		2020		Thereafter		Total

Transportation and Processing	$	116	$	517	$	529	$	603	$	579	$	3,053	$	5,397
Drilling and Field Services		59		112		66		33		19		7		296
Operating Leases		7		25		24		11		3		19		89

Total	$	182	$	654	$	619	$	647	$	601	$	3,079	$	5,782

Included within transportation and processing in the table above are certain commitments associated with midstream service agreements with VMLP as described in Note 14. Divestiture transactions can reduce certain commitments disclosed above.

Contingencies

Encana is involved in various legal claims and actions arising in the course of the Company’s operations. Although the outcome of these claims cannot be predicted with certainty, the Company does not expect these matters to have a material adverse effect on Encana’s financial position, cash flows or results of operations. If an unfavourable outcome were to occur, there exists the possibility of a material adverse impact on the Company’s consolidated net earnings or loss in the period in which the outcome is determined. Accruals for litigation and claims are recognized if the Company determines that the loss is probable and the amount can be reasonably estimated. The Company believes it has made adequate provision for such legal claims.

Encana Corporation

Notes to Condensed Consolidated Financial Statements

Prepared in accordance with U.S. GAAP in US$

Exhibit 99.2

LOGO

Encana Corporation

Management’s Discussion and Analysis

For the period ended September 30, 2016

(Prepared in U.S. Dollars)

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) for Encana Corporation (“Encana” or the “Company”) should be read with the unaudited interim Condensed Consolidated Financial Statements for the period ended September 30, 2016 (“Interim Condensed Consolidated Financial Statements”), as well as the audited Consolidated Financial Statements and MD&A for the year ended December 31, 2015.

The Interim Condensed Consolidated Financial Statements and comparative information have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”) and in U.S. dollars, except where another currency has been indicated. References to C$ are to Canadian dollars. Encana’s financial results are consolidated in Canadian dollars; however, the Company has adopted the U.S. dollar as its reporting currency to facilitate a more direct comparison to other North American oil and gas companies. Production volumes are presented on an after royalties basis consistent with U.S. oil and gas reporting standards. The term “liquids” is used to represent oil, natural gas liquids (“NGLs” or “NGL”) and condensate. The term “liquids rich” is used to represent natural gas streams with associated liquids volumes. This document is dated November 2, 2016.

For convenience, references in this document to “Encana”, the “Company”, “we”, “us”, “our” and “its” may, where applicable, refer only to or include any relevant direct and indirect subsidiary corporations and partnerships (“Subsidiaries”) of Encana Corporation, and the assets, activities and initiatives of such Subsidiaries.

Certain measures in this document do not have any standardized meaning as prescribed by U.S. GAAP and, therefore, are considered non-GAAP measures. Non-GAAP measures are commonly used in the oil and gas industry and by Encana to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Non-GAAP measures include: Operating Earnings (Loss); Cash Flow; Free Cash Flow; Upstream Operating Cash Flow, excluding Hedging; Operating Netback; Debt to Debt Adjusted Cash Flow; and Debt to Adjusted Capitalization. Further information regarding these measures can be found in the Non-GAAP Measures section of this MD&A, including reconciliations of Net Earnings (Loss) to Operating Earnings (Loss), and of Cash from Operating Activities to Cash Flow and Free Cash Flow.

The following volumetric measures may be abbreviated throughout this MD&A: thousand cubic feet (“Mcf”); million cubic feet (“MMcf”) per day (“MMcf/d”); barrel (“bbl”); thousand barrels (“Mbbls”) per day (“Mbbls/d”); barrels of oil equivalent (“BOE”) per day (“BOE/d”); thousand barrels of oil equivalent (“MBOE”) per day (“MBOE/d”); million British thermal units (“MMBtu”).

Readers should also read the Advisory section located at the end of this document, which provides information on Forward-Looking Statements and Oil and Gas Information.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Encana’s Strategic Objectives

Encana is a leading North American energy producer that is focused on developing its strong portfolio of resource plays producing natural gas, oil and NGLs. Encana is committed to growing long-term shareholder value through a disciplined focus on generating profitable growth. The Company is pursuing the key business objectives of balancing its commodity portfolio, focusing capital investments in a limited number of core, high return and scalable projects, maintaining portfolio flexibility to respond to changing market conditions, maximizing profitability through operating efficiencies, reducing costs and preserving balance sheet strength.

Encana continually strives to improve operating efficiencies, foster technological innovation and lower its cost structures, while reducing its environmental footprint through play optimization. The Company’s resource play hub model utilizes highly integrated production facilities to develop resources by drilling multiple wells from central pad sites. Capital and operating efficiencies are achieved through repeatable operations, optimizing equipment and processes and by applying continuous improvement techniques.

Encana hedges a portion of its expected natural gas, oil and NGLs production volumes. The Company’s hedging program reduces volatility and helps sustain revenues and Operating Netbacks during periods of lower prices. Further information on the Company’s commodity price positions as at September 30, 2016 can be found in the Results Overview section of this MD&A and in Note 19 to the Interim Condensed Consolidated Financial Statements.

Additional information on expected results can be found in Encana’s Corporate Guidance on the Company’s website www.encana.com.

Encana’s Business

Reportable Segments

Encana’s reportable segments are determined based on the Company’s 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 Canada. Plays in Canada primarily include: Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; Wheatland in southern Alberta; and Deep Panuke located offshore Nova Scotia.

●

USA Operations includes the exploration for, development of, and production of natural gas, oil and NGLs and other related activities within the U.S. Plays in the U.S. primarily include: Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; and Piceance in northwest Colorado. The DJ Basin in northern Colorado was included in USA Operations until the divestiture of these assets on July 29, 2016.

●

Comparative figures for 2015 have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Further information regarding the reclassification can be found in the Results of Operations section of this MD&A.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Core Four Assets

Encana continually reviews and evaluates its strategy and capital investment plans in response to changing market conditions. In the current commodity price environment, Encana is focused on accelerating growth from high return scalable projects, referred to as the Core Four Assets, comprising Montney, Duvernay, Eagle Ford and Permian.

●

Montney development is focused on exploiting natural gas and condensate in the deep basin of the Montney formation, exclusively using horizontal well technology and the application of multi-stage hydraulic fracturing. Encana has access to natural gas processing, gathering and compression capacity under contract with third parties, as well as ownership interest in additional processing plants in the play.

●

Duvernay development is focused on exploiting shale gas and condensate in the Duvernay formation using horizontal well technology with pad drilling and the application of the resource play hub model. Encana holds ownership interest in natural gas processing plants and gathering and compression capacity in the play.

●

Eagle Ford development is focused on exploiting tight oil in the thickest portion of the Eagle Ford shale located in the Karnes Trough, using horizontal wells drilled with tighter cluster spacing and the resource play hub model to optimize well and completions design. Encana’s position is located in an area with easy access to oil markets via pipeline or truck. The Company also has access to natural gas gathering and processing capacity under contract with third parties.

●

Permian development is focused on exploiting oil in the Midland basin, where properties are characterized by multiple producing horizons which can accommodate multiple completions per well with the potential for both vertical and horizontal drilling. Encana has focused development using horizontal well technology and multi-well horizontal pad drilling to maximize resource recovery and minimize developmental footprint. The play has an established transportation infrastructure for easy access to markets via pipeline or truck.

For additional information on the Core Four Assets, please refer to Encana’s Annual Information Form for the year ended December 31, 2015 (“AIF”).

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Results Overview

Highlights

In the three months ended September 30, 2016, Encana reported:

●

Net Earnings of $317 million and Operating Earnings of $32 million. Net Earnings includes an after-tax gain on divestitures of $288 million.

●

Cash From Operating Activities of $186 million and Cash Flow of $252 million.

●

Average realized natural gas prices, including financial hedges, of $2.02 per Mcf. Average realized oil prices, including financial hedges, of $52.79 per bbl. Average realized NGL prices, including financial hedges, of $25.99 per bbl.

●

Average natural gas production volumes of 1,326 MMcf/d and average oil and NGL production volumes of 117.0 Mbbls/d.

●

Dividends paid of $0.015 per share.

In the nine months ended September 30, 2016, Encana reported:

●

Net Loss of $663 million and an Operating Loss of $9 million. Net Loss includes after-tax non-cash ceiling test impairments of $938 million, an after-tax unrealized hedging loss of $313 million, an after-tax gain on divestitures of $287 million and an after-tax non-operating foreign exchange gain of $209 million.

●

Cash From Operating Activities of $426 million and Cash Flow of $536 million.

●

Average realized natural gas prices, including financial hedges, of $2.02 per Mcf. Average realized oil prices, including financial hedges, of $48.06 per bbl. Average realized NGL prices, including financial hedges, of $21.97 per bbl.

●

Average natural gas production volumes of 1,420 MMcf/d and average oil and NGL production volumes of 126.5 Mbbls/d.

●

Dividends paid of $0.045 per share.

●

Cash and cash equivalents of $766 million at period end.

Significant developments for the Company during the nine months ended September 30, 2016 included the following:

●

Announced a public offering (the “2016 Share Offering”) of 107,000,000 common shares of Encana at a price of $9.35 per common share, as well as an over-allotment option (the “Over-Allotment Option”) granted to the underwriters to purchase up to an additional 16,050,000 shares at a price of $9.35 per common share. The 2016 Share Offering was completed on September 23, 2016 for gross proceeds to Encana of approximately $1.0 billion. The Over-Allotment Option was subsequently exercised in full on October 4, 2016 for additional gross proceeds of approximately $150 million, bringing the aggregate gross proceeds to approximately $1.15 billion.

●

Closed the sale of the Company’s DJ Basin assets in Colorado to Crestone Peak Resources Holdings LLC on July 29, 2016 for proceeds of approximately $628 million, after closing and other adjustments. The transaction had an effective date of April 1, 2015.

●

Closed the sale of the Company’s Gordondale assets in Montney in northwestern Alberta to Birchcliff Energy Ltd. on July 28, 2016 for proceeds of approximately C$603 million, after closing adjustments. The transaction had an effective date of January 1, 2016.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

●

Completed tender offers (collectively, the “Tender Offers”) announced in March 2016 for certain of the Company’s outstanding senior notes (collectively, the “Notes”) and accepted for purchase $489 million of Notes. The Company paid an aggregate amount of $406 million, including accrued and unpaid interest of $6 million and an early tender premium of $14 million, which resulted in the recognition of a net gain on the early debt retirement of $89 million, before tax.

●

Completed workforce reductions announced in February 2016 to better align staffing levels and the organizational structure with the Company’s reduced capital spending program as a result of the current low commodity price environment, incurring restructuring charges of approximately $33 million. Including the impact of the sale of the DJ Basin assets during the third quarter of 2016, Encana reduced its workforce by approximately 20 percent in 2016.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Financial Results


	Nine months ended September 30						2016									2015												2014
($ millions, except as indicated)	2016			2015			Q3			Q2			Q1			Q4			Q3			Q2			Q1			Q4

Net Earnings (Loss)	$	(663	)	$	(4,553	)	$	317		$	(601	)	$	(379	)	$	(612	)	$	(1,236	)	$	(1,610	)	$	(1,707	)	$	198
$ per share - basic & diluted		(0.78	)		(5.59	)		0.37			(0.71	)		(0.45	)		(0.72	)		(1.47	)		(1.91	)		(2.25	)		0.27

Operating Earnings (Loss) ^{(1), (2)}		(9	)		(172	)		32			89			(130	)		111			(24	)		(167	)		19			35
$ per share - diluted		(0.01	)		(0.21	)		0.04			0.10			(0.15	)		0.13			(0.03	)		(0.20	)		0.03			0.05

Cash Flow ⁽¹⁾		536			1,047			252			182			102			383			371			181			495			377
$ per share - diluted		0.63			1.29			0.29			0.21			0.12			0.45			0.44			0.22			0.65			0.51

Revenues, Net of Royalties		2,096			3,391			979			364			753			1,031			1,312			830			1,249			2,254

Realized Hedging Gain (Loss), before tax		354			614			54			129			171			287			213			161			240			124
Unrealized Hedging Gain (Loss), before tax		(465	)		(241	)		41			(451	)		(55	)		(90	)		173			(278	)		(136	)		489

Upstream Operating Cash Flow		984			1,712			374			330			280			552			531			479			702			821
Upstream Operating Cash Flow, excluding Hedging ⁽¹⁾		626			1,083			319			204			103			261			314			315			454			694

Capital Investment		779			1,952			205			215			359			280			473			743			736			857
Net Acquisitions & (Divestitures) ⁽³⁾		(1,044	)		(1,077	)		(1,040	)		1			(5	)		(761	)		(99	)		(140	)		(838	)		50

Cash From Operating Activities		426			1,233			186			83			157			448			453			298			482			261
Free Cash Flow ⁽¹⁾		(243	)		(905	)		47			(33	)		(257	)		103			(102	)		(562	)		(241	)		(480	)

Ceiling Test Impairments, after tax		(938	)		(3,616	)		-			(331	)		(607	)		(514	)		(1,066	)		(1,328	)		(1,222	)		-
Gain (Loss) on Divestitures, after tax		287			9			288			(1	)		-			-			(2	)		1			10			(11	)

Production Volumes
Natural Gas (MMcf/d)		1,420			1,656			1,326			1,418			1,516			1,571			1,547			1,568			1,857			1,861
Oil & NGLs (Mbbls/d)
Oil		76.1			85.8			69.1			78.9			80.5			90.6			91.9			86.2			79.2			68.8
NGLs		50.4			43.7			47.9			53.1			50.3			54.4			48.5			41.1			41.5			37.6
Total Oil & NGLs		126.5			129.5			117.0			132.0			130.8			145.0			140.4			127.3			120.7			106.4
Total Production (MBOE/d)		363.1			405.6			338.0			368.3			383.4			406.8			398.3			388.7			430.1			416.7

Production Mix (%)
Natural Gas		65			68			65			64			66			64			65			67			72			74
Oil & NGLs		35			32			35			36			34			36			35			33			28			26

(1)

A non-GAAP measure, which is defined in the Non-GAAP Measures section of this MD&A.

(2)

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.

(3)

Excludes the impact of the Athlon Energy Inc. acquisition during Q4 2014. Further information can be found in the Company’s annual MD&A for the year ended December 31, 2015.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Factors Impacting Quarterly Net Earnings

Encana’s quarterly net earnings can be significantly impacted by fluctuations in commodity prices, realized and unrealized hedging gains and losses, production volumes, foreign exchange rates, ceiling test impairments and gains or losses on divestitures, which are provided in the Financial Results table and the Prices and Foreign Exchange Rates table within this MD&A. Quarterly net earnings are also impacted by Encana’s interim income tax expense calculated using the estimated annual effective income tax rate and a gain on debt retirement as discussed in the Other Operating Results section of this MD&A, as well as by divestiture transactions as discussed in the Net Capital Investment section of this MD&A.

Ceiling Test Impairments

Under full cost accounting, the carrying amount of Encana’s natural gas and oil properties within each country cost centre is subject to a ceiling test performed quarterly. Ceiling test impairments are recognized when the capitalized costs, net of accumulated depletion and the related deferred income taxes, exceed the sum of the estimated after-tax future net cash flows from proved reserves as calculated under Securities and Exchange Commission (“SEC”) requirements using the 12-month average trailing prices and discounted at 10 percent.

The Company did not recognize ceiling test impairments in the third quarter of 2016. In the first nine months of 2016, the Company recognized after-tax non-cash ceiling test impairments of $361 million in the Canadian Operations and $577 million in the USA Operations. The non-cash ceiling test impairments primarily resulted from the decline in the 12-month average trailing prices. Further declines in the 12-month average trailing prices could reduce proved reserves volumes and values and result in the recognition of future ceiling test impairments.

Future ceiling test impairments are difficult to reasonably predict and depend on commodity prices, as well as changes to reserves estimates, future development costs, capitalized costs, unproved property costs and acquisitions. Proceeds received from upstream divestitures are generally deducted from the Company’s capitalized costs and can reduce the likelihood of ceiling test impairments.

The Company has calculated the estimated effects that certain price changes would have had on its ceiling test impairments for the nine months ended September 30, 2016. Using the average of the price on the first day of each month from the most recent nine months ended September 30, 2016 and commodity futures prices for the three months ended December 31, 2016, the 12-month average trailing prices for the nine months ended September 30, 2016 would have been $42.83 per bbl for WTI, C$52.36 per bbl for Edmonton Light Sweet, $2.49 per MMBtu for Henry Hub, and C$2.10 per MMBtu for AECO. Based on these estimated prices, while holding all other inputs and assumptions in the ceiling test constant, no additional impairments would have been recognized for the Canadian and USA Operations at September 30, 2016. Due to uncertainties in estimating proved reserves, the resulting implications may not be indicative of Encana’s future development plans, operating or financial results.

The Company believes that the discounted after-tax future net cash flows from proved reserves required to be used in the ceiling test calculation are not indicative of the fair market value of Encana’s natural gas and oil properties or the future net cash flows expected to be generated from such properties. The discounted after-tax future net cash flows do not consider the fair market value of unamortized unproved properties, or probable or possible natural gas and liquids reserves. In addition, there is no consideration given to the effect of future changes in commodity prices. Encana manages its business using estimates of reserves and resources based on forecast prices and costs.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Three months ended September 30, 2016 versus September 30, 2015

Net Earnings in the third quarter of 2016 were $317 million compared to a Net Loss of $1,236 million in 2015 due to the items discussed in the Operating Earnings and Cash Flow sections below. Net Earnings in the third quarter of 2016 were also impacted by lower after-tax non-cash ceiling test impairments, an after-tax gain on divestitures, a lower after-tax non-operating foreign exchange loss, a lower after-tax unrealized hedging gain and changes in deferred tax.

Operating Earnings in the third quarter of 2016 were $32 million compared to an Operating Loss of $24 million in 2015 due to lower depreciation, depletion and amortization (“DD&A”), foreign exchange gains on settlements and long-term compensation costs as a result of the increase in the Encana share price, as well as the items discussed in the Cash Flow section below. Operating Earnings excludes restructuring charges as described in the Non-GAAP Measures section of this MD&A.

Cash from operating activities of $186 million decreased $267 million compared to 2015 primarily due to changes in non-cash working capital as well as the items discussed in the Cash Flow section below.

Cash Flow of $252 million decreased $119 million compared to 2015 and was impacted by the following significant items:

●

Average realized natural gas prices, excluding financial hedges, of $2.15 per Mcf decreased $0.45 per Mcf from 2015 primarily reflecting a lower AECO benchmark price. Lower realized natural gas prices decreased revenues $51 million. Average realized liquids prices, excluding financial hedges, of $35.31 per bbl increased $0.79 per bbl from 2015 primarily reflecting a shift in the NGL production mix to higher value condensate, partially offset by lower oil benchmark prices. Higher realized liquids prices increased revenues $11 million.

●

Average natural gas production volumes of 1,326 MMcf/d decreased 221 MMcf/d from 2015 primarily due to divestitures and natural declines, partially offset by successful drilling programs in Montney and Duvernay and higher production from Deep Panuke. Lower natural gas volumes decreased revenues $57 million. Average oil and NGL production volumes of 117.0 Mbbls/d decreased 23.4 Mbbls/d from 2015 primarily due to divestitures, natural declines, and a reduced capital program in Eagle Ford, partially offset by successful drilling programs in the Core Four Assets. Lower oil and NGL volumes decreased revenues $77 million.

●

Realized financial hedging gains before tax were $54 million compared to $213 million in 2015.

●

Production, mineral and other taxes decreased $18 million primarily due to divestures in the USA Operations, lower natural gas production volumes in Piceance, and lower oil and NGL production volumes in Eagle Ford.

●

Transportation and processing expense decreased $115 million primarily due to the expiration and renegotiation of certain transportation contracts and divestitures, partially offset by higher liquids processing fees in Montney and Duvernay.

●

Operating expense decreased $36 million. Excluding non-cash long-term compensation costs of $25 million, operating expense decreased $61 million primarily due to lower activity in the USA Operations, the sale of Haynesville natural gas assets in the fourth quarter of 2015 and cost-saving initiatives.

●

Administrative expense increased $30 million. Excluding non-cash long-term compensation costs of $48 million, administrative expense decreased $18 million primarily due to lower restructuring costs and lower salaries and benefits as a result of a lower headcount, partially offset by third party payments relating to previously divested assets.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Nine months ended September 30, 2016 versus September 30, 2015

Net Loss in the first nine months of 2016 was $663 million compared to $4,553 million in 2015 due to the items discussed in the Operating Earnings and Cash Flow sections below. Net Loss in the first nine months of 2016 was also impacted by lower after-tax non-cash ceiling test impairments, an after-tax non-operating foreign exchange gain, a higher after-tax gain on divestures, a higher after-tax unrealized hedging loss, an after-tax gain on debt retirement, and changes in deferred tax.

Operating Loss in the first nine months of 2016 was $9 million compared to $172 million in 2015 primarily due to the items discussed in the Cash Flow section below. Operating Loss in first nine months of 2016 was also impacted by lower DD&A, foreign exchange gains on settlements, long-term compensation costs as a result of the increase in the Encana share price and changes in deferred tax. Operating Earnings excludes restructuring charges as described in the Non-GAAP Measures section of this MD&A.

Cash from operating activities of $426 million decreased $807 million compared to 2015 primarily due to the items discussed in the Cash Flow section below as well as changes in non-cash working capital.

Cash Flow of $536 million decreased $511 million compared to 2015 and was impacted by the following significant items:

●

Average realized natural gas prices, excluding financial hedges, of $1.73 per Mcf decreased $1.14 per Mcf from 2015 reflecting lower benchmark prices. Lower realized natural gas prices decreased revenues $458 million. Average realized liquids prices, excluding financial hedges, of $30.70 per bbl decreased $6.75 per bbl from 2015 reflecting lower benchmark prices. Lower realized liquids prices decreased revenues $229 million.

●

Average natural gas production volumes of 1,420 MMcf/d decreased 236 MMcf/d from 2015 primarily due to divestitures, natural declines, and lower production from Deep Panuke, partially offset by successful drilling programs in Montney and Duvernay. Lower natural gas volumes decreased revenues $167 million. Average oil and NGL production volumes of 126.5 Mbbls/d decreased 3.0 Mbbls/d from 2015 primarily due to natural declines, divestitures, and a reduced capital program in Eagle Ford, partially offset by successful drilling programs in the Core Four Assets. Lower oil and NGL volumes decreased revenues $30 million.

●

Realized financial hedging gains before tax were $354 million compared to $614 million in 2015.

●

Production, mineral and other taxes decreased $40 million primarily due to divestures in the USA Operations and lower oil and NGL production volumes in Eagle Ford, San Juan and Piceance.

●

Transportation and processing expense decreased $239 million primarily due to the expiration and renegotiation of certain transportation contracts, divestitures, lower activity in Other Upstream Operations and the lower U.S./Canadian dollar exchange rate, partially offset by higher gathering and processing fees in Montney and Duvernay.

●

Operating expense decreased $106 million. Excluding non-cash long-term compensation costs of $32 million, operating expense decreased $138 million primarily due to lower activity in the USA Operations, cost-saving initiatives and divestitures.

●

Administrative expense increased $14 million. Excluding non-cash long-term compensation costs of $66 million, administrative expense decreased $52 million primarily due to lower restructuring costs, lower salaries and benefits as a result of a lower headcount, lower office costs and the lower U.S./Canadian dollar exchange rate.

●

Interest expense decreased $199 million primarily due to a one-time payment of $165 million in the second quarter of 2015 associated with the April 2015 early debt redemptions as well as lower interest on debt following these redemptions and the March 2016 early debt retirement.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Prices and Foreign Exchange Rates


	Nine months ended September 30				2016						2015								2014
(average for the period)	2016		2015		Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4

Encana Realized Pricing
Including Hedging
Natural Gas ($/Mcf)	$	2.02	$	4.04	$	2.02	$	1.86	$	2.18	$	3.43	$	3.71	$	3.52	$	4.78	$	4.16
Oil & NGLs ($/bbl)
Oil		48.06		49.64		52.79		48.65		43.38		49.77		49.38		53.08		46.17		80.38
NGLs		21.97		21.78		25.99		23.34		16.63		21.36		19.57		24.28		21.92		40.87
Total Oil & NGLs		37.66		40.24		41.82		38.47		33.09		39.11		39.09		43.78		37.83		66.40
Total ($/BOE)		21.03		29.36		22.38		20.98		19.89		27.19		28.17		28.53		31.24		35.55

Excluding Hedging
Natural Gas ($/Mcf)		1.73		2.87		2.15		1.35		1.73		2.13		2.60		2.37		3.53		3.94
Oil & NGLs ($/bbl)
Oil		36.47		45.43		41.70		40.65		27.84		37.48		42.40		53.15		40.53		66.38
NGLs		21.98		21.78		26.09		23.29		16.63		21.36		19.57		24.28		21.92		40.87
Total Oil & NGLs		30.70		37.45		35.31		33.67		23.53		31.43		34.52		43.83		34.13		57.35
Total ($/BOE)		17.48		23.68		20.64		17.29		14.85		19.44		22.26		23.90		24.82		32.25

Natural Gas Price Benchmarks
NYMEX ($/MMBtu)		2.29		2.80		2.81		1.95		2.09		2.27		2.77		2.64		2.98		4.00
AECO (C$/Mcf)		1.85		2.81		2.20		1.25		2.11		2.65		2.80		2.67		2.95		4.01
Algonquin City Gate ($/MMBtu)		2.85		5.31		2.82		2.44		3.28		3.05		2.37		2.24		11.41		4.99
Basis Differential ($/MMBtu)
AECO/NYMEX		0.90		0.56		1.12		0.98		0.56		0.27		0.61		0.50		0.57		0.44

Oil Price Benchmarks
West Texas Intermediate (WTI) ($/bbl)		41.33		51.00		44.94		45.59		33.45		42.18		46.43		57.94		48.64		73.15
Edmonton Light Sweet (C$/bbl)		50.11		58.63		54.80		54.73		40.80		52.95		56.23		67.71		51.94		75.69

Foreign Exchange
Average U.S./Canadian Dollar Exchange Rate (US$ per C$1)		0.757		0.794		0.766		0.776		0.728		0.749		0.764		0.813		0.806		0.881

Encana’s financial results are influenced by fluctuations in commodity prices, price differentials and the U.S./Canadian dollar exchange rate. In the third quarter of 2016 compared to 2015, Encana’s average realized natural gas price, excluding hedging, primarily reflected a lower AECO benchmark price. In the first nine months of 2016, Encana’s average realized natural gas price, excluding hedging, reflected lower benchmark prices compared to 2015. Hedging activities reduced Encana’s average realized natural gas price $0.13 per Mcf in the third quarter of 2016 and contributed $0.29 per Mcf to Encana’s average realized natural gas price in the first nine months of 2016.

In the third quarter and first nine months of 2016, Encana’s average realized oil prices, excluding hedging, reflected lower benchmark prices compared to 2015. Hedging activities contributed $11.09 per bbl to Encana’s average realized oil price in the third quarter of 2016 and $11.59 per bbl in the first nine months of 2016.

In the third quarter and first nine months of 2016, Encana’s average realized NGL prices, excluding hedging, primarily reflected a shift in the NGL production mix to higher value condensate compared to 2015. Hedging activities reduced Encana’s average realized NGL price $0.10 per bbl in the third quarter of 2016 and $0.01 per bbl in the first nine months of 2016.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Financial Hedge Agreements

As a means of managing commodity price volatility and its impact on cash flows, Encana enters into various financial hedge agreements. Unsettled derivative financial contracts are recorded at the date of the financial statements based on the fair value of the contracts. Changes in fair value result from volatility in forward commodity prices and changes in the balance of unsettled contracts between periods. The changes in fair value are recognized in revenue as unrealized hedging gains and losses. Realized hedging gains and losses are recognized in revenue when derivative financial contracts are settled.

During October 2016, Encana has entered into additional hedging agreements. The tables below summarize a selection of the Company’s significant hedging contracts on expected future production as at September 30, 2016 and October 21, 2016.

Natural Gas

As at October 21, 2016

As at September 30, 2016

Term

Notional

Volumes

(MMcf/d)

Average

Price

($/Mcf)

Term

Notional

Volumes

(MMcf/d)

Average

Price

($/Mcf)

NYMEX Fixed Price Contracts

2016

1,050

2.94

2016

791

2.72

Q1 2017

350

3.07

Q1 2017

350

3.07

NYMEX Fixed Price Swaptions ⁽¹⁾

2017

345

2.70

2017

345

2.70

NYMEX Three-Way Options

2017

300

2017

300

Sold call price

3.07

Bought put price

2.75

Sold put price

2.27

NYMEX Costless Collars

2016

335

2016

335

Sold call price

2.46

Bought put price

2.22

NYMEX Costless Collars

Q2-Q4 2017

100

Q2-Q4 2017

100

Sold call price

3.55

Bought put price

2.75

(1)

NYMEX Fixed Price Swaptions give the counterparty the option to extend 2016 fixed price swaps to December 31, 2017 at the strike price.

Crude Oil

As at October 21, 2016

As at September 30, 2016

Term

Notional

Volumes

(Mbbls/d)

Average

Price

($/bbl)

Term

Notional

Volumes

(Mbbls/d)

Average

Price

($/bbl)

WTI Fixed Price Contracts

2016

42.0

55.18

2016

42.0

55.18

2017

25.5

51.34

2017

15.5

49.49

WTI Fixed Price Swaptions ⁽¹⁾

Q2 2017

10.0

50.86

Q2 2017

10.0

50.86

WTI Three-Way Options

2016

23.5

2016

23.5

Sold call price

62.96

Bought put price

55.00

Sold put price

47.04

WTI Three-Way Options

2017

25.0

2017

15.0

Sold call price

59.42

59.03

Bought put price

49.21

48.48

Sold put price

38.41

37.35

(1)

WTI Fixed Price Swaptions give the counterparty the option to extend first quarter 2017 fixed price swaps to June 30, 2017 at the strike price.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

The Company’s hedging program helps sustain Cash Flow and Operating Netbacks during periods of lower prices. For additional information, see Note 19 to the Interim Condensed Consolidated Financial Statements.

Foreign Exchange

As disclosed in the Prices and Foreign Exchange Rates table, the average U.S./Canadian dollar exchange rate decreased 0.037 in the first nine months of 2016 compared to 2015. The table below summarizes selected foreign exchange impacts on Encana’s financial results when compared to the same period in 2015.


	Nine months ended September 30
	$ millions			$/BOE

Increase (Decrease) in:

Capital Investment	$	(25	)

Transportation and Processing Expense		(25	)	$	(0.25)

Operating Expense		(5	)		(0.05)

Administrative Expense		(7	)		(0.07)

Depreciation, Depletion and Amortization		(13	)		(0.13)

Price Sensitivities

Natural gas and liquids prices fluctuate in response to changing market forces, creating varying impacts on Encana’s financial results. The Company’s potential exposure to commodity price fluctuations is summarized in the table below, which shows the estimated effects that certain price changes would have had on the Company’s Cash Flow and Operating Earnings (Loss) for the third quarter of 2016. The price sensitivities below are based on business conditions, transactions and production volumes during the third quarter of 2016. Accordingly, these sensitivities may not be indicative of financial results for other periods, under other economic circumstances or with additional fluctuations in commodity prices.


			Impact On
			Net Earnings (Loss) / Operating Earnings (Loss)				Cash Flow
($ millions, except as indicated)	Price Change ⁽¹⁾		Increase		Decrease		Increase		Decrease

Increase or Decrease in:

NYMEX Natural Gas Price		+/-$0.25/MMBtu	$	3	$	(3)	$	5	$	(5)

WTI Oil Price		+/- $5.00/bbl	$	10	$	(15)	$	15	$	(20)

(1)

Assumes only one variable changes while all other variables, including the Company’s financial hedging positions, are held constant.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Net Capital Investment


	Three months ended September 30						Nine months ended September 30
($ millions)	2016			2015			2016			2015

Canadian Operations	$	56		$	76		$	173		$	341

USA Operations		149			394			605			1,605

Market Optimization		1			1			1			1

Corporate & Other		(1	)		2			-			5


Capital Investment		205			473			779			1,952


Acquisitions		67			-			69			38

Divestitures		(1,107	)		(99	)		(1,113	)		(1,115	)


Net Acquisitions & (Divestitures)		(1,040	)		(99	)		(1,044	)		(1,077	)


Net Capital Investment	$	(835	)	$	374		$	(265	)	$	875

Capital Investment by Play


	Three months ended September 30						Nine months ended September 30
($ millions)	2016			2015			2016			2015

Canadian Operations

Montney	$	31		$	17		$	94		$	144

Duvernay		26			58			80			185

Other Upstream Operations

Wheatland		-			-			-			4

Deep Panuke		-			-			-			3

Other and emerging		(1	)		1			(1	)		5


Total Canadian Operations	$	56		$	76		$	173		$	341


USA Operations

Eagle Ford	$	41		$	142		$	155		$	514

Permian		102			219			418			761

Other Upstream Operations

DJ Basin		-			17			-			161

San Juan		-			2			-			61

Piceance		2			1			2			7

Haynesville		-			15			-			27

Other and emerging		4			(2	)		30			74


Total USA Operations	$	149		$	394		$	605		$	1,605


Core Four Assets:

Capital Investment	$	200		$	436		$	747		$	1,604

% of Encana Capital Investment		98			92			96			82

Capital Investment

Capital investment during the first nine months of 2016 was $779 million compared to $1,952 million in 2015 which reflects disciplined capital spending focused on the Core Four Assets and a reduced capital spending program as a result of the current low commodity price environment.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Acquisitions

Acquisitions in the first nine months of 2016 were $68 million in the USA Operations, which primarily included the purchase of land and property in Eagle Ford with oil and liquids rich potential.

Divestitures

Divestitures in the first nine months of 2016 were $457 million in the Canadian Operations and $656 million in the USA Operations, which primarily included the transactions discussed below, as well as the sale of certain properties that did not complement Encana’s existing portfolio of assets. The Canadian Operations included approximately C$603 million ($458 million), after closing adjustments, for the sale of the Gordondale assets, which included approximately 54,200 net acres of land and associated infrastructure located in Montney in northwestern Alberta. The USA Operations included approximately $628 million, after closing and other adjustments, for the sale of the DJ Basin assets located in Colorado, comprising approximately 51,000 net acres.

Divestitures in the first nine months of 2015 were $935 million in the Canadian Operations and $127 million in the USA Operations, which primarily included the transactions discussed below, as well as the sale of certain properties that did not complement Encana’s existing portfolio of assets. The Canadian Operations included approximately C$558 million ($468 million), after closing adjustments, for the sale of the Company’s working interest in certain assets in Wheatland located in central and southern Alberta, as well as approximately C$453 million ($357 million), after closing adjustments, in cash consideration net to Encana for the sale of certain natural gas gathering and compression assets in Montney in northeastern British Columbia to Veresen Midstream Limited Partnership (“VMLP”). Further information regarding VMLP can be found in Note 14 to the Interim Condensed Consolidated Financial Statements.

Amounts received from the Company’s divestiture transactions have been deducted from the respective Canadian and U.S. full cost pools, except for divestitures that resulted in a significant alteration between capitalized costs and proved reserves in the respective country cost centre. For divestitures that result in a gain or loss and constitute a business, goodwill is allocated to the divestiture. Accordingly, for the three and nine months ended September 30, 2016, Encana recognized a gain of approximately $397 million, before tax, on the sale of the Company’s Gordondale assets in the Canadian cost centre and allocated goodwill of $32 million.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Production Volumes


	Three months ended September 30				Nine months ended September 30
(average daily, after royalties)	2016		2015		2016		2015

Natural Gas (MMcf/d)		1,326		1,547		1,420		1,656

Oil (Mbbls/d)		69.1		91.9		76.1		85.8

NGLs (Mbbls/d)		47.9		48.5		50.4		43.7


Total Oil & NGLs (Mbbls/d)		117.0		140.4		126.5		129.5


Total Production (MBOE/d)		338.0		398.3		363.1		405.6


Core Four Assets:

Total Production Volumes (MBOE/d)		242.8		249.3		259.9		231.9

% of Total Encana Production Volumes		72		63		72		57

Production Volumes by Play


	Three months ended September 30								Nine months ended September 30
(average daily, after royalties)	Natural Gas (MMcf/d)				Oil & NGLs (Mbbls/d)				Natural Gas (MMcf/d)				Oil & NGLs (Mbbls/d)
	2016		2015		2016		2015		2016		2015		2016		2015

Canadian Operations

Montney ⁽¹⁾		669		711		16.6		21.8		758		705		20.0		22.3

Duvernay		61		26		9.1		4.9		55		20		8.5		3.6

Other Upstream Operations

Wheatland		73		80		0.4		0.4		77		89		0.4		1.1

Deep Panuke		69		-		-		-		49		71		-		-

Other and emerging ⁽²⁾		52		59		0.1		0.1		48		76		-		0.1


Total Canadian Operations		924		876		26.2		27.2		987		961		28.9		27.1


USA Operations

Eagle Ford		50		48		37.7		46.0		49		40		40.2		40.6

Permian		50		54		41.1		36.7		49		42		39.4		31.0

Other Upstream Operations

DJ Basin		16		55		2.6		16.1		42		53		8.4		15.2

San Juan		8		15		3.9		6.8		9		14		4.1		6.7

Piceance		267		311		3.1		3.5		276		326		2.9		3.6

Haynesville		-		177		-		-		-		203		-		-

Other and emerging		11		11		2.4		4.1		8		17		2.6		5.3


Total USA Operations		402		671		90.8		113.2		433		695		97.6		102.4


Total Production Volumes		1,326		1,547		117.0		140.4		1,420		1,656		126.5		129.5


Core Four Assets:

Total Production Volumes		830		839		104.5		109.4		911		807		108.1		97.5

% of Total Encana Production Volumes		63		54		89		78		64		49		85		75

(1)

Production volumes associated with the Gordondale assets were included in Montney until the divestiture of these assets on July 28, 2016.

(2)

Natural gas production volumes from Bighorn have been included within Other and emerging for 2015.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Natural Gas Production Volumes

In the third quarter of 2016, average natural gas production volumes of 1,326 MMcf/d decreased 221 MMcf/d from 2015. In the first nine months of 2016, average natural gas production volumes of 1,420 MMcf/d decreased 236 MMcf/d from 2015.

In the third quarter and first nine months of 2016, the USA Operations volumes were lower primarily due to the sale of Haynesville natural gas assets in the fourth quarter of 2015, the sale of the DJ Basin assets in the third quarter of 2016 and natural declines in Piceance.

In the third quarter of 2016, the Canadian Operations volumes were higher primarily due to a successful drilling program in Duvernay and higher production from Deep Panuke, partially offset by lower production volumes in Montney. The Montney production volumes were lower primarily due to the sale of the Gordondale assets, partially offset by a successful drilling program. In the first nine months of 2016, the Canadian Operations volumes were higher primarily due to higher production volumes in Montney and a successful drilling program in Duvernay, partially offset by production declines at Deep Panuke. The Montney production volumes were higher primarily due to a successful drilling program, partially offset by the sale of the Gordondale assets.

Oil and NGL Production Volumes

In the third quarter of 2016, average oil and NGL production volumes of 117.0 Mbbls/d decreased 23.4 Mbbls/d from 2015. In the first nine months of 2016, average oil and NGL production volumes of 126.5 Mbbls/d decreased 3.0 Mbbls/d from 2015.

In the third quarter and first nine months of 2016, the USA Operations volumes were lower primarily due to natural declines in Other Upstream Operations, the sale of the DJ Basin assets and a reduced capital program in Eagle Ford, partially offset by successful drilling programs in Permian and Eagle Ford.

In the third quarter of 2016, the Canadian Operations volumes were lower primarily due to lower production volumes in Montney, partially offset by a successful drilling program in Duvernay. The Montney production volumes were lower primarily due to the sale of the Gordondale assets, and natural declines on Montney oil wells, partially offset by a successful drilling program. In the first nine months of 2016, the Canadian Operations volumes were higher primarily due to a successful drilling program in Duvernay, partially offset by lower volumes in Montney. The Montney production volumes were lower primarily due to the sale of the Gordondale assets, and natural declines on Montney oil wells, partially offset by a successful drilling program.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Results of Operations

Canadian Operations

Production Volumes

Three months ended September 30

Natural Gas

(MMcf/d)

Oil & NGLs

(Mbbls/d)

Total

(MBOE/d)

2016

2015

2016

2015

2016

2015

Production Volumes – After Royalties

924

876

26.2

27.2

180.2

173.2

Revenues, Net of Royalties


	Three months ended September 30
	Natural Gas										Oil & NGLs
	($ millions)					($/Mcf)					($ millions)				($/bbl)
	2016			2015		2016			2015		2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	159		$	199	$	1.87		$	2.48	$	85	$	75	$	35.47	$	29.75

Realized Financial Hedging Gain (Loss)		(12	)		104		(0.14	)		1.28		12		5		5.03		2.09


Revenues, Net of Royalties	$	147		$	303	$	1.73		$	3.76	$	97	$	80	$	40.50	$	31.84

Operating Results ⁽¹⁾


	Three months ended September 30
	Operating Cash Flow ⁽²⁾ ($ millions)				Operating Netback ⁽³⁾ ($/BOE)
	2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	246	$	282	$	14.74	$	17.22

Realized Financial Hedging Gain		-		109		-		6.82


Revenues, Net of Royalties		246		391		14.74		24.04

Expenses

Production, mineral and other taxes		5		6		0.28		0.42

Transportation and processing		136		151		8.23		9.47

Operating		38		34		2.29		2.09


Operating Cash Flow/Netback	$	67	$	200	$	3.94	$	12.06

(1)

Updated to reflect the reclassification of property taxes and certain other levied charges as discussed below.

(2)

Also includes other revenues and expenses, such as third party processing, with no associated volumes.

(3)

A non-GAAP measure as defined in the Non-GAAP Measures section of this MD&A.

Comparative figures for the three months ended September 30, 2015 above have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Formerly, these costs were presented in either transportation and processing expense or operating expense. As a result, for the three months ended September 30, 2015, the Canadian Operations has reclassified $2 million from transportation and processing expense and $4 million from operating expense to production, mineral and other taxes. There were no changes to the reported totals for Operating Cash Flow or Operating Netback.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Three months ended September 30, 2016 versus September 30, 2015

Operating Cash Flow of $67 million decreased $133 million and was impacted by the following significant items:

●

Lower natural gas prices reflected a lower AECO benchmark price, which decreased revenues $51 million. Higher liquids prices increased revenues $13 million, primarily reflecting a shift in the NGL production mix to higher value condensate, partially offset by lower oil benchmark prices.

●

Average natural gas production volumes of 924 MMcf/d were higher by 48 MMcf/d, which increased revenues $11 million. Changes in production volumes are discussed in the Production Volumes section of this MD&A.

●

Realized financial hedging gains were nil compared to $109 million in 2015.

●

Transportation and processing expense decreased $15 million primarily due to the expiration of certain contracts and the sale of the Gordondale assets, partially offset by higher liquids processing fees in Montney and Duvernay.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Production Volumes

Nine months ended September 30

Natural Gas

(MMcf/d)

Oil & NGLs

(Mbbls/d)

Total

(MBOE/d)

2016

2015

2016

2015

2016

2015

Production Volumes – After Royalties

987

961

28.9

27.1

193.3

187.2

Revenues, Net of Royalties


	Nine months ended September 30
	Natural Gas								Oil & NGLs
	($ millions)				($/Mcf)				($ millions)				($/bbl)
	2016		2015		2016		2015		2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	424	$	788	$	1.57	$	3.00	$	240	$	243	$	30.36	$	32.91

Realized Financial Hedging Gain		81		364		0.30		1.39		41		2		5.15		0.25

Revenues, Net of Royalties	$	505	$	1,152	$	1.87	$	4.39	$	281	$	245	$	35.51	$	33.16

Operating Results ⁽¹⁾


	Nine months ended September 30
	Operating Cash Flow ⁽²⁾ ($ millions)				Operating Netback ⁽³⁾ ($/BOE)
	2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	670	$	1,044	$	12.55	$	20.17

Realized Financial Hedging Gain		122		366		2.30		7.15

Revenues, Net of Royalties		792		1,410		14.85		27.32

Expenses

Production, mineral and other taxes		17		22		0.31		0.45

Transportation and processing		440		496		8.30		9.69

Operating		115		108		2.13		2.09

Operating Cash Flow/Netback	$	220	$	784	$	4.11	$	15.09

(1)

Updated to reflect the reclassification of property taxes and certain other levied charges as discussed below.

(2)

Also includes other revenues and expenses, such as third party processing, with no associated volumes.

(3)

A non-GAAP measure as defined in the Non-GAAP Measures section of this MD&A.

Comparative figures for the nine months ended September 30, 2015 above have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Formerly, these costs were presented in either transportation and processing expense or operating expense. As a result, for the nine months ended September 30, 2015, the Canadian Operations has reclassified $5 million from transportation and processing expense and $17 million from operating expense to production, mineral and other taxes. There were no changes to the reported totals for Operating Cash Flow or Operating Netback.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Nine months ended September 30, 2016 versus September 30, 2015

Operating Cash Flow of $220 million decreased $564 million and was impacted by the following significant items:

●

Lower natural gas prices reflected lower benchmark prices, which decreased revenues $388 million. Lower liquids prices reflected lower benchmark prices, which decreased revenues $20 million.

●

Average natural gas production volumes of 987 MMcf/d were higher by 26 MMcf/d, which increased revenues $24 million. Average oil and NGL production volumes of 28.9 Mbbls/d were higher by 1.8 Mbbls/d, which increased revenues $17 million. Changes in production volumes are discussed in the Production Volumes section of this MD&A.

●

Realized financial hedging gains were $122 million compared to $366 million in 2015.

●

Transportation and processing expense decreased $56 million primarily due to the expiration of certain contracts, the lower U.S./Canadian dollar exchange rate, the sale of the Gordondale assets and lower activity in Other Upstream Operations, partially offset by higher gathering and processing fees in Montney and Duvernay.

Other Expenses


	Three months ended September 30				Nine months ended September 30
($ millions, except as indicated)	2016		2015		2016		2015

Depreciation, depletion & amortization	$	54	$	64	$	203	$	237

Depletion rate ($/BOE)		3.21		4.01		3.83		4.63

Impairments		-		-		493		-

DD&A decreased in the third quarter and first nine months of 2016 compared to 2015 primarily due to a lower depletion rate, partially offset by higher production volumes. DD&A for the first nine months of 2016 was also impacted by the lower U.S./Canadian dollar exchange rate. The depletion rate decreased in the third quarter and first nine months compared to 2015 primarily due to the impact of ceiling test impairments recognized in the first six months of 2016. The depletion rate for the first nine months of 2016 was also impacted by the sales of certain assets in Wheatland and certain natural gas gathering and compression assets in Montney in the first quarter of 2015 and the lower U.S./Canadian dollar exchange rate.

In the third quarter and first nine months of 2016, the Canadian Operations recognized before-tax non-cash ceiling test impairments of nil and $493 million, respectively. The impairments primarily resulted from the decline in the 12-month average trailing prices, which reduced the Canadian Operations proved reserves volumes and values as calculated under SEC requirements.


	Natural Gas		Oil & NGLs
	AECO (C$/MMBtu)		Edmonton Light Sweet (C$/bbl)

12-Month Average Trailing Reserves Pricing ⁽¹⁾

September 30, 2016		2.05		50.96

December 31, 2015		2.69		58.82

September 30, 2015		3.02		65.69

(1)

All prices were held constant in all future years when estimating reserves.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

USA Operations

Production Volumes

Three months ended September 30

Natural Gas

(MMcf/d)

Oil & NGLs

(Mbbls/d)

Total

(MBOE/d)

2016

2015

2016

2015

2016

2015

Production Volumes – After Royalties

402

671

90.8

113.2

157.8

225.1

Revenues, Net of Royalties


	Three months ended September 30
	Natural Gas										Oil & NGLs
	($ millions)					($/Mcf)					($ millions)				($/bbl)
	2016			2015		2016			2015		2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	102		$	170	$	2.78		$	2.75	$	295	$	371	$	35.26	$	35.66
Realized Financial Hedging Gain (Loss)		(4	)		54		(0.11	)		0.88		58		54		6.94		5.17

Revenues, Net of Royalties	$	98		$	224	$	2.67		$	3.63	$	353	$	425	$	42.20	$	40.83

Operating Results ⁽¹⁾


	Three months ended September 30
	Operating Cash Flow ⁽²⁾ ($ millions)				Operating Netback ⁽³⁾ ($/BOE)
	2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	403	$	547	$	27.36	$	26.13
Realized Financial Hedging Gain		55		108		3.72		5.21

Revenues, Net of Royalties		458		655		31.08		31.34
Expenses
Production, mineral and other taxes		15		32		1.05		1.52
Transportation and processing		43		155		2.96		7.52
Operating		93		137		6.37		6.63

Operating Cash Flow/Netback	$	307	$	331	$	20.70	$	15.67

(1)

Updated to reflect the reclassification of property taxes and certain other levied charges as discussed below.

(2)

Also includes other revenues and expenses, such as third party processing, with no associated volumes.

(3)

A non-GAAP measure as defined in the Non-GAAP Measures section of this MD&A.

Comparative figures for the three months ended September 30, 2015 above have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Formerly, these costs were presented in operating expense. As a result, for the three months ended September 30, 2015, the USA Operations has reclassified $5 million from operating expense to production, mineral and other taxes. There were no changes to the reported totals for Operating Cash Flow or Operating Netback.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Three months ended September 30, 2016 versus September 30, 2015

Operating Cash Flow of $307 million decreased $24 million and was impacted by the following significant items:

●

Average natural gas production volumes of 402 MMcf/d were lower by 269 MMcf/d, which decreased revenues $68 million. Average oil and NGL production volumes of 90.8 Mbbls/d were lower by 22.4 Mbbls/d, which decreased revenues $74 million. Changes in production volumes are discussed in the Production Volumes section of this MD&A.

●

Realized financial hedging gains were $55 million compared to $108 million in 2015.

●

Production, mineral and other taxes decreased $17 million primarily due to the sale of the DJ Basin assets in the third quarter of 2016, the sale of Haynesville natural gas assets in the fourth quarter of 2015, lower natural gas production volumes in Piceance, and lower oil and NGL production volumes in Eagle Ford.

●

Transportation and processing expense decreased $112 million primarily due to the expiration and renegotiation of certain transportation contracts, the sale of Haynesville natural gas assets in the fourth quarter of 2015 and the sale of the DJ Basin assets in the third quarter of 2016.

●

Operating expense decreased $44 million primarily due to lower activity, the sale of Haynesville natural gas assets in the fourth quarter of 2015 and cost-saving initiatives, partially offset by long-term compensation costs due to the increase in the Encana share price.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Production Volumes

Nine months ended September 30

Natural Gas

(MMcf/d)

Oil & NGLs

(Mbbls/d)

Total

(MBOE/d)

2016

2015

2016

2015

2016

2015

Production Volumes – After Royalties

433

695

97.6

102.4

169.8

218.4

Revenues, Net of Royalties


	Nine months ended September 30
	Natural Gas								Oil & NGLs
	($ millions)				($/Mcf)				($ millions)				($/bbl)
	2016		2015		2016		2015		2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	250	$	511	$	2.11	$	2.69	$	824	$	1,080	$	30.80	$	38.65

Realized Financial Hedging Gain		31		166		0.26		0.88		201		97		7.50		3.46


Revenues, Net of Royalties	$	281	$	677	$	2.37	$	3.57	$	1,025	$	1,177	$	38.30	$	42.11

Operating Results ⁽¹⁾


	Nine months ended September 30
	Operating Cash Flow ⁽²⁾ ($ millions)				Operating Netback ⁽³⁾ ($/BOE)
	2016		2015		2016		2015

Revenues, Net of Royalties, excluding Hedging	$	1,091	$	1,609	$	23.10	$	26.69

Realized Financial Hedging Gain		236		263		4.98		4.42


Revenues, Net of Royalties		1,327		1,872		28.08		31.11

Expenses

Production, mineral and other taxes		56		91		1.20		1.52

Transportation and processing		214		454		4.60		7.61

Operating		293		399		6.25		6.67


Operating Cash Flow/Netback	$	764	$	928	$	16.03	$	15.31

(1)

Updated to reflect the reclassification of property taxes and certain other levied charges as discussed below.

(2)

Also includes other revenues and expenses, such as third party processing, with no associated volumes.

(3)

A non-GAAP measure as defined in the Non-GAAP Measures section of this MD&A.

Comparative figures for the nine months ended September 30, 2015 above have been updated to present property taxes and certain other levied charges within production, mineral and other taxes. Formerly, these costs were presented in operating expense. As a result, for the nine months ended September 30, 2015, the USA Operations has reclassified $19 million from operating expense to production, mineral and other taxes. There were no changes to the reported totals for Operating Cash Flow or Operating Netback.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Nine months ended September 30, 2016 versus September 30, 2015

Operating Cash Flow of $764 million decreased $164 million and was impacted by the following significant items:

●

Lower natural gas prices reflected lower benchmark prices, which decreased revenues $70 million. Lower liquids prices reflected lower benchmark prices, which decreased revenues $209 million.

●

Average natural gas production volumes of 433 MMcf/d were lower by 262 MMcf/d, which decreased revenues $191 million. Average oil and NGL production volumes of 97.6 Mbbls/d were lower by 4.8 Mbbls/d, which decreased revenues $47 million. Changes in production volumes are discussed in the Production Volumes section of this MD&A.

●

Realized financial hedging gains were $236 million compared to $263 million in 2015.

●

Production, mineral and other taxes decreased $35 million primarily due to the sale of Haynesville natural gas assets in the fourth quarter of 2015, the sale of the DJ Basin assets in the third quarter of 2016, and lower oil and NGL production volumes in Eagle Ford, San Juan and Piceance.

●

Transportation and processing expense decreased $240 million primarily due to the expiration and renegotiation of certain transportation contracts and the sale of Haynesville natural gas assets in the fourth quarter of 2015 and lower activity in Other Upstream Operations.

●

Operating expense decreased $106 million primarily due to lower activity, cost-saving initiatives, and the sale of Haynesville natural gas assets in the fourth quarter of 2015, partially offset by long-term compensation costs due to the increase in the Encana share price.

Other Expenses


	Three months ended September 30				Nine months ended September 30
($ millions, except as indicated)	2016		2015		2016		2015

Depreciation, depletion & amortization	$	112	$	265	$	414	$	902

Depletion rate ($/BOE)		7.69		12.77		8.89		14.92

Impairments		—		1,671		903		5,668

DD&A decreased in the third quarter and first nine months of 2016 compared to 2015 primarily due to a lower depletion rate and lower production volumes. The depletion rate was lower primarily due to the impact of ceiling test impairments recognized in 2015 and the first six months of 2016, the sale of the DJ Basin assets in the third quarter of 2016 and the sale of Haynesville natural gas assets in the fourth quarter of 2015.

In the third quarter and first nine months of 2016, the USA Operations recognized before-tax non-cash ceiling test impairments of nil and $903 million, respectively compared to $1,671 million and $5,668 million, respectively, in 2015. The impairments primarily resulted from the decline in the 12-month average trailing prices, which reduced the USA Operations proved reserves volumes and values as calculated under SEC requirements.


	Natural Gas		Oil & NGLs
	Henry Hub ($/MMBtu)		WTI ($/bbl)

12-Month Average Trailing Reserves Pricing ⁽¹⁾

September 30, 2016		2.28		41.68

December 31, 2015		2.58		50.28

September 30, 2015		3.05		59.21

(1)

All prices were held constant in all future years when estimating reserves.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Market Optimization


	Three months ended September 30					Nine months ended September 30
($ millions)	2016			2015		2016			2015

Revenues	$	214		$	66	$	393		$	293

Expenses

Transportation and processing		22			-		65			-

Operating		11			4		25			28

Purchased product		197			60		349			260


	$	(16	)	$	2	$	(46	)	$	5

Market Optimization revenues and purchased product expense relate to activities that provide operational flexibility and cost mitigation for transportation commitments, product type, delivery points and customer diversification. Revenues and purchased product expense increased in the third quarter and first nine months of 2016 compared to 2015 primarily due to higher third-party volumes for optimization activity. Transportation and processing relates to downstream transportation contracts and commitments that were not transferred with certain property divestitures.

Corporate and Other


	Three months ended September 30				Nine months ended September 30
($ millions)	2016		2015		2016			2015

Revenues	$	61	$	200	$	(416	)	$	(184	)

Expenses

Transportation and processing		1		11		(4	)		4

Operating		3		6		13			17

Depreciation, depletion and amortization		18		23		58			73


	$	39	$	160	$	(483	)	$	(278	)

Revenues mainly includes unrealized hedging gains or losses recorded on derivative financial contracts which result from the volatility in forward curves of commodity prices and changes in the balance of unsettled contracts between periods. Transportation and processing expense reflects unrealized financial hedging gains or losses related to the Company’s power financial derivative contracts. DD&A includes amortization of corporate assets, such as computer equipment, office buildings, furniture and leasehold improvements.

Corporate and Other results include revenues and operating expenses related to the sublease of office space in The Bow office building. Further information on The Bow office sublease can be found in Note 10 to the Interim Condensed Consolidated Financial Statements.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Other Operating Results

Expenses


	Three months ended September 30						Nine months ended September 30
($ millions)	2016			2015			2016			2015

Accretion of asset retirement obligation	$	12		$	11		$	38		$	34

Administrative		91			61			231			217

Interest		99			105			309			508

Foreign exchange (gain) loss, net		49			348			(307	)		918

(Gain) loss on divestitures		(395	)		2			(393	)		(14	)

Other		(4	)		(3	)		(67	)		2


	$	(148	)	$	524		$	(189	)	$	1,665

Administrative expense in the third quarter increased from 2015 primarily due to long-term compensation costs due to the increase in the Encana share price and third party payments relating to previously divested assets, partially offset by lower restructuring costs and lower salaries and benefits as a result of a lower headcount. Administrative expense in the first nine months of 2016 increased from 2015 primarily due to long-term compensation costs due to the increase in the Encana share price, partially offset by lower restructuring costs, lower salaries and benefits as a result of a lower headcount, lower office costs and the lower U.S./Canadian dollar exchange rate. During the first quarter of 2016, Encana completed workforce reductions announced in February 2016 to better align staffing levels and the organizational structure with its reduced capital spending program as a result of the current low commodity price environment. Encana incurred restructuring costs of $33 million during the first nine months of 2016 compared to $59 million in 2015.

Interest expense in the first nine months of 2016 decreased from 2015 primarily due to a one-time payment of $165 million in the second quarter of 2015 associated with the April 2015 early redemptions of the Company’s $700 million 5.90 percent notes due December 1, 2017 and its C$750 million 5.80 percent medium-term notes due January 18, 2018 and lower interest on debt following these redemptions as well as the early retirement of long-term debt in March 2016 as discussed in the Liquidity and Capital Resources section of this MD&A.

Foreign exchange gains and losses result from the impact of the fluctuations in the Canadian to U.S. dollar exchange rate. In the third quarter of 2016, Encana recorded lower foreign exchange losses on the translation of U.S. dollar long-term debt issued from Canada compared to 2015 and foreign exchange gains on settlements in the third quarter of 2016 compared to foreign exchange losses in 2015. In the first nine months of 2016, Encana recorded foreign exchange gains on the translation of U.S. dollar long-term debt issued from Canada and on settlements compared to foreign exchange losses in 2015.

Gain on divestitures in the third quarter and first nine months of 2016 primarily includes the before tax gain on the sale of the Gordondale assets as discussed in the Net Capital Investment section of this MD&A. Gain on divestitures in the first nine months of 2015 primarily includes a before tax gain on the sale of the Encana Place office building in Calgary in the first quarter of 2015.

Other in the first nine months of 2016 primarily includes a before tax gain of $89 million on the early retirement of long-term debt as discussed in the Liquidity and Capital Resources section of this MD&A, partially offset by a one-time third party payment relating to a previously divested asset.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Income Tax


	Three months ended September 30						Nine months ended September 30
($ millions)	2016			2015			2016			2015

Current Income Tax (Recovery)	$	(14	)	$	(19	)	$	(23	)	$	(38	)

Deferred Income Tax (Recovery)		76			(576	)		(683	)		(2,442	)


Income Tax Expense (Recovery)	$	62		$	(595	)	$	(706	)	$	(2,480	)

Total income tax recovery of $706 million in the first nine months of 2016 was lower than 2015 primarily due to changes in net earnings (loss) before tax, mainly resulting from lower non-cash ceiling test impairments, and changes in the estimated annual effective income tax rate. The net earnings variances are discussed in the Financial Results section of this MD&A.

Encana’s interim income tax expense is determined using the estimated annual effective income tax rate applied to year-to-date net earnings before tax plus the effect of legislative changes and amounts in respect of prior periods. The estimated annual effective income tax rate is impacted by expected annual earnings, statutory rate and other foreign differences, non-taxable capital gains and losses, tax differences on divestitures and transactions, and partnership tax allocations in excess of funding.

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its Subsidiaries operate are subject to change. As a result, there are tax matters under review. The Company believes that the provision for taxes is adequate.

Liquidity and Capital Resources


	Three months ended September 30						Nine months ended September 30
($ millions)	2016			2015			2016			2015

Net Cash From (Used In)

Operating activities	$	186		$	453		$	426		$	1,233

Investing activities		830			(544	)		216			(957	)

Financing activities		(542	)		(36	)		(155	)		(238	)

Foreign exchange gain (loss) on cash and cash equivalents held in foreign currency		(1	)		(17	)		8			(24	)


Increase (Decrease) in Cash and Cash Equivalents	$	473		$	(144	)	$	495		$	14


Cash and Cash Equivalents, End of Period	$	766		$	352		$	766		$	352

Operating Activities

Net cash from operating activities in the third quarter of 2016 of $186 million decreased $267 million from 2015 primarily due to net changes in non-cash working capital and the Cash Flow variances discussed in the Financial Results section of this MD&A. In the third quarter of 2016, the net change in non-cash working capital was a deficit of $60 million compared to a surplus of $100 million in 2015.

Net cash from operating activities in the first nine months of 2016 of $426 million decreased $807 million from 2015 primarily as a result of the Cash Flow variances discussed in the Financial Results section of this MD&A and net changes in non-cash working capital. In the first nine months of 2016, the net change in non-cash working capital was a deficit of $95 million compared to a surplus of $204 million in 2015.

The Company had a working capital surplus of $450 million at September 30, 2016 compared to $274 million at December 31, 2015. The increase in working capital is primarily due to an increase in cash and cash equivalents,

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

and income tax receivable, and a decrease in accounts payable and accrued liabilities, partially offset by a decrease in risk management assets and accounts receivable and accrued revenues, and an increase in risk management liabilities. At September 30, 2016, working capital included cash and cash equivalents of $766 million compared to $271 million at December 31, 2015. Encana expects it will continue to meet the payment terms of its suppliers. Encana’s primary sources of liquidity are discussed in the Financing Activities section of this MD&A.

Investing Activities

Net cash from investing activities in the first nine months of 2016 was $216 million compared to net cash used of $957 million in 2015. The change was primarily due to lower capital expenditures. Further information on capital expenditures can be found in the Net Capital Investment section of this MD&A.

Financing Activities

Net cash used in financing activities in the first nine months of 2016 was $155 million compared to $238 million in 2015. The decrease was primarily due to a lower repayment of long-term debt in 2016, partially offset by a net repayment of revolving long-term debt in 2016 compared to a net issuance in 2015.

Credit Facilities

The following table outlines the Company’s committed revolving bank credit facilities (collectively, the “Credit Facilities”) at September 30, 2016:

($ billions)

Capacity

Unused

Maturity Date

Committed Revolving Bank Credit Facilities

Encana Credit Facility

3.0

July 2020

U.S. Subsidiary Credit Facility

1.5

July 2020

Encana is currently in compliance with, and expects that it will continue to be in compliance with, all financial covenants under its credit facility agreements. Management monitors Debt to Adjusted Capitalization as a proxy for Encana’s financial covenant under its credit facility agreements, which requires debt to adjusted capitalization to be less than 60 percent. The definitions used in the covenant under the Credit Facilities adjust capitalization for cumulative historical ceiling test impairments that were recorded as at December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP. Debt to Adjusted Capitalization was 23 percent at September 30, 2016 and 28 percent at December 31, 2015.

During the first quarter of 2016, Encana received a downgrade in its credit rating by Moody’s Investors Service, along with confirmed investment grade credit ratings by Standard & Poor’s Ratings Services, DBRS Limited and Fitch Ratings, Inc. As a result of the split ratings, the Company no longer has access to its U.S. Commercial Paper program and there was a nominal increase in the cost of short-term borrowings on the Credit Facilities. The Company continues to have full access to its $4.5 billion Credit Facilities, all of which remained unused at September 30, 2016. The Credit Facilities remain committed through July 2020. The split ratings have not impacted the Company’s ability to fund its operations, development activities or capital program. For further information on credit ratings, refer to the Company’s AIF.

Long-Term Debt

Encana’s long-term debt totaled $4,198 million at September 30, 2016 and $5,333 million at December 31, 2015. There was no current portion of long-term debt outstanding at September 30, 2016 or December 31, 2015. The long-term debt balances reflect Encana’s January 1, 2016 retrospective adoption of accounting standards update

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

(“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, as described in the Accounting Policies and Estimates section of this MD&A.

On March 16, 2016, Encana announced Tender Offers for certain of the Company’s outstanding Notes. The Tender Offers were for an aggregate purchase price of $250 million, excluding accrued and unpaid interest. The consideration for each $1,000 principal amount of Notes validly tendered and accepted for purchase included an early tender premium of $30 per $1,000 principal amount of Notes accepted for purchase, provided the Notes were validly tendered at or prior to the early tender date of March 29, 2016. All Notes validly tendered and accepted for purchase also received accrued and unpaid interest up to the settlement date.

On March 30, 2016, Encana announced an increase in the aggregate purchase price of the Tender Offers to $400 million, excluding accrued and unpaid interest, and accepted for purchase (i) $156 million aggregate principal amount of 5.15 percent notes due 2041, (ii) $295 million aggregate principal amount of 6.50 percent notes due 2038 and (iii) $38 million aggregate principal amount of 6.625 percent notes due 2037. The Company paid an aggregate amount of $406 million, including accrued and unpaid interest of $6 million and an early tender premium of $14 million, for Notes accepted for purchase. The Company used cash on hand and borrowings under the Credit Facilities to fund the Tender Offers.

Encana also recognized a gain on the early debt retirement of $103 million, before tax, representing the difference between the carrying amount of the Notes accepted for purchase and the consideration paid. The gain on the early debt retirement net of the early tender premium totaled $89 million, which is included in other expenses in the Interim Condensed Consolidated Statement of Earnings.

During the third quarter of 2016, Encana used net proceeds from the 2016 Share Offering and divestitures to repay indebtedness under the Credit Facilities. At September 30, 2016, Encana had no outstanding balance under the Credit Facilities. At December 31, 2015, Encana had an outstanding balance of $210 million under the Credit Facilities which reflected principal obligations related to LIBOR loans maturing at various dates with a weighted average interest rate of 1.87 percent. At December 31, 2015, Encana also had an outstanding balance under the Credit Facilities of $440 million which reflected U.S. Commercial Paper issuances maturing at various dates with a weighted average interest rate of 1.13 percent.

Encana has the flexibility to refinance maturing long-term debt or repay debt maturities from existing sources of liquidity. Encana’s primary sources of liquidity include cash and cash equivalents, the Credit Facilities, working capital, operating cash flow and proceeds from asset divestitures.

Shelf Prospectuses

On August 24, 2016, Encana filed shelf prospectuses whereby the Company may issue from time to time up to $6.0 billion, or the equivalent in foreign currencies, of debt securities, common shares, Class A preferred shares, subscription receipts, warrants, units, share purchase contracts and share purchase units in Canada and/or the U.S. (collectively, the “2016 Shelf Prospectuses”). On September 19, 2016, the Company filed prospectus supplements to the 2016 Shelf Prospectuses for the issuance of 107,000,000 common shares of Encana at a price of $9.35 per common share, as well as the issuance of common shares under an Over-Allotment Option, pursuant to an underwriting agreement. The 2016 Share Offering was completed on September 23, 2016 for gross proceeds to Encana of approximately $1.0 billion. After deducting underwriter’s fees and costs of the 2016 Share Offering, the net cash proceeds received were approximately $981 million. The Over-Allotment Option for 16,050,000 common shares was subsequently exercised in full on October 4, 2016 for additional gross proceeds of approximately $150 million, bringing the aggregate gross proceeds to approximately $1.15 billion. At September 30, 2016, approximately $5.0 billion, or the equivalent in foreign currencies, remained accessible under the 2016 Shelf Prospectuses, the availability of which is dependent upon certain eligibility requirements and market conditions.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

During 2015, the Company had access to a shelf prospectus which was filed in June 2014 (the “2014 Shelf Prospectus”). In March 2015, the Company filed a prospectus supplement to the 2014 Shelf Prospectus and issued 98,458,975 common shares of Encana, including common shares issued under an over-allotment option, for aggregate gross proceeds of approximately C$1.44 billion ($1.13 billion). The 2014 Shelf Prospectus expired in July 2016.

Outstanding Share Data

(millions)

October 28, 2016

September 30, 2016

December 31, 2015

Common Shares Outstanding

973.0

956.9

849.8

Stock Options with TSARs attached ⁽¹⁾

Outstanding

16.5

18.8

18.3

Exercisable

8.6

10.9

10.0

(1)

A TSAR gives the option holder the right to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of exercise over the original grant price.

Pursuant to the 2016 Share Offering, Encana issued 107,000,000 common shares during the third quarter of 2016 and 16,050,000 common shares relating to the Over-Allotment Option during October 2016.

During the first nine months of 2016, Encana issued 112,477 common shares under the Company’s dividend reinvestment plan (“DRIP”) compared with 6,115,535 common shares in 2015. The number of common shares issued under the DRIP decreased in 2016 primarily as a result of the lower dividend paid per share in the first nine months of 2016 as well as Encana’s December 14, 2015 announcement that any dividends subsequent to December 31, 2015 distributed to shareholders participating in the DRIP will be issued from its treasury without a discount to the average market price of the common shares.

Dividends

Encana pays quarterly dividends to shareholders at the discretion of the Board.


	Three months ended September 30				Nine months ended September 30
($ millions, except as indicated)	2016		2015		2016		2015

Dividend Payments	$	13	$	59	$	38	$	166

Dividend Payments ($/share)		0.015		0.07		0.045		0.21

The dividends paid in the third quarter and first nine months of 2016 included $0.2 million and $0.8 million, respectively, in common shares issued in lieu of cash dividends under the DRIP compared to $21 million and $53 million, respectively, for 2015. Common shares issued in the 2016 Share Offering were not eligible to receive the dividend that was paid during the third quarter of 2016.

On November 2, 2016, the Board declared a dividend of $0.015 per share payable on December 30, 2016 to common shareholders of record as of December 15, 2016.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Capital Structure

The Company’s capital structure consists of total shareholders’ equity plus long-term debt, including the current portion. The Company’s objectives when managing its capital structure are to maintain financial flexibility to preserve Encana’s access to capital markets and its ability to meet financial obligations and finance internally generated growth, as well as potential acquisitions. Encana has a long-standing practice of maintaining capital discipline and managing and adjusting its capital structure according to market conditions to maintain flexibility while achieving the Company’s objectives.

To manage the capital structure, the Company may adjust capital spending, adjust dividends paid to shareholders, issue new shares, issue new debt or repay existing debt. In managing its capital structure, the Company monitors the following non-GAAP financial metrics as indicators of its overall financial strength, which are defined in the Non-GAAP Measures section of this MD&A.


	September 30, 2016		December 31, 2015

Debt to Debt Adjusted Cash Flow		3.4x		2.8x

Debt to Adjusted Capitalization		23%		28%

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Commitments and Contingencies

Commitments

The following table outlines the Company’s commitments at September 30, 2016:


	Expected Future Payments
($ millions, undiscounted)	2016		2017		2018		2019		2020		Thereafter		Total

Transportation and Processing	$	116	$	517	$	529	$	603	$	579	$	3,053	$	5,397

Drilling and Field Services		59		112		66		33		19		7		296

Operating Leases		7		25		24		11		3		19		89


Commitments	$	182	$	654	$	619	$	647	$	601	$	3,079	$	5,782

Included in Transportation and Processing in the table above are certain commitments associated with midstream service agreements with VMLP. Additional information can be found in Note 14 to the Interim Condensed Consolidated Financial Statements. Encana also has significant development commitments with joint venture partners, a portion of which may be satisfied by the Drilling and Field Services commitments included in the table above.

Further to the Commitments disclosed above, Encana also has obligations related to its risk management program and to fund its defined benefit pension and other post-employment benefit plans. Contractual obligations arising from long-term debt, asset retirement obligations, The Bow office building and capital leases are recognized on the Company’s balance sheet. Additional information can be found in the note disclosures to the Interim Condensed Consolidated Financial Statements.

Divestiture transactions can reduce certain commitments and obligations disclosed above. The Company expects to fund its 2016 commitments and obligations from Cash Flow and cash and cash equivalents.

Contingencies

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Risk Management

Encana’s business, prospects, financial condition, results of operations and cash flows, and in some cases its reputation, are impacted by risks that can be categorized as follows:

●

financial risks;

●

operational risks; and

●

environmental, regulatory, reputational and safety risks.

Encana aims to strengthen its position as a leading North American energy producer and grow shareholder value through a disciplined focus on generating profitable growth. Encana continues to focus on developing a balanced portfolio of low-risk and low-cost long-life plays, enabling the Company to respond to market uncertainties. Management adjusts financial and operational risk strategies to proactively respond to changing economic conditions and to mitigate or reduce risk.

Issues that can affect Encana’s reputation are generally strategic or emerging issues that can be identified early and then appropriately managed, but can also include unforeseen issues that must be managed on a more urgent basis. Encana takes a proactive approach to the identification and management of issues that affect the Company’s reputation and has established appropriate policies, procedures, guidelines and responsibilities for identifying and managing these risks.

Financial Risks

Encana defines financial risks as the risk of loss or lost opportunity resulting from financial management and market conditions that could have an impact on Encana’s business.

Financial risks include, but are not limited to:

●

market pricing of natural gas and liquids;

●

credit and liquidity;

●

foreign exchange rates; and

●

interest rates.

Encana partially mitigates its exposure to financial risks through the use of various financial instruments and physical contracts. The use of derivative financial instruments is governed under formal policies and is subject to limits established by the Board. All derivative financial agreements are with major global financial institutions or with corporate counterparties having investment grade credit ratings. Encana has in place policies and procedures with respect to the required documentation and approvals for the use of derivative financial instruments and specifically ties their use to the mitigation of financial risk in order to support capital plans and strategic objectives.

To partially mitigate commodity price risk, the Company may enter into transactions that fix, set a floor or combine to set floors and caps on price exposures. To help protect against regional price differentials, Encana executes transactions to manage the price differentials between its production areas and various sales points. Further information, including the details of Encana’s financial instruments as at September 30, 2016, is disclosed in Note 19 to the Interim Condensed Consolidated Financial Statements.

Counterparty credit risks are regularly and proactively managed. A substantial portion of Encana’s credit exposure is with customers in the oil and gas industry or financial institutions. Credit exposures are managed through the use of Board-approved credit policies governing the Company’s credit portfolio, including credit practices that limit transactions and grant payment terms according to industry standards and counterparties’ credit quality.

The Company manages liquidity risk using cash and debt management programs. The Company has access to cash equivalents and a range of funding alternatives at competitive rates through the Credit Facilities as well as

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

debt and equity capital markets. Encana closely monitors the Company’s ability to access cost-effective credit and ensures that sufficient liquidity is in place to fund capital expenditures and dividend payments. The Company minimizes its liquidity risk by managing its capital structure which may include adjusting capital spending, adjusting dividends paid to shareholders, issuing new shares, issuing new debt or repaying existing debt.

Operational Risks

Operational risks are defined as the risk of loss or lost opportunity resulting from the following:

●

operating activities;

●

capital activities, including the ability to complete projects; and

●

reserves and resources replacement.

The Company’s ability to operate, generate cash flows, complete projects, and value reserves and resources is subject to financial risks, including commodity price volatility mentioned above, continued market demand for its products and other factors outside of its control. These factors include: general business and market conditions; economic recessions and financial market turmoil; the overall state of the capital markets, including investor appetite for investments in the oil and gas industry generally and the Company’s securities in particular; the ability to secure and maintain cost-effective financing for its commitments; legislative, environmental and regulatory matters; unexpected cost increases; royalties; taxes; partner funding for their share of joint venture and partnership commitments; the availability of drilling and other equipment; the ability to retain leases and access lands; the ability to access water for hydraulic fracturing operations; weather; the availability and proximity of processing and pipeline capacity; transportation interruption and constraints; technology failures; the ability to assess and integrate new assets; cyber security breaches; accidents; the availability and ability to attract qualified personnel and service providers; type curve performance; and reservoir quality. If Encana fails to acquire or find additional natural gas and liquids reserves and resources, its reserves, resources and production will decline materially from their current levels and, therefore, its cash flows are highly dependent upon successfully exploiting current reserves and resources and acquiring, discovering or developing additional reserves and resources. To mitigate these risks, as part of the capital approval process, the Company’s projects are evaluated on a fully risked basis, including geological risk, engineering risk and reliance on third party service providers.

When making operating and investing decisions, Encana’s highly disciplined, dynamic and centrally controlled capital allocation program ensures investment dollars are directed in a manner that is consistent with the Company’s strategy. Encana also mitigates operational risks through a number of other policies, systems and processes as well as by maintaining a comprehensive insurance program.

In January 2016, the Alberta Government released the Modernized Royalty Framework (“MRF”) outlining changes to the province’s royalty structure. The MRF will result in the modernization and simplification of the royalty structure with changes to the royalty framework for crude oil, liquids and natural gas applying to new wells drilled after January 1, 2017 and existing royalties remaining in effect for 10 years on wells drilled (spud) before 2017. The Company has assessed the impact of the changes to the royalty structure and believes the MRF will not have a negative impact on its operations.

Environmental, Regulatory, Reputational and Safety Risks

The Company is committed to safety in its operations and has high regard for the environment and stakeholders, including the public and regulators. The Company’s business is subject to all of the operating risks normally associated with the exploration for, development of and production of natural gas, oil and NGLs and the operation of midstream facilities. When assessing the materiality of environmental risk factors, Encana takes into account a number of qualitative and quantitative factors, including, but not limited to, the financial, operational, reputational and regulatory aspects of each identified risk factor. These risks are managed by executing policies and standards that are designed to comply with or exceed government regulations and industry standards. In addition, Encana maintains a system that identifies, assesses and controls safety, security and environmental risk and requires regular reporting to the Executive Leadership Team and the Board. The Corporate Responsibility, Environment,

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Health and Safety Committee provides recommended environmental policies for approval by Encana’s Board and oversees compliance with government laws and regulations. Monitoring and reporting programs for environmental, health and safety performance in day-to-day operations, as well as inspections and audits, are designed to provide assurance that environmental and regulatory standards are met. Emergency response plans are in place to provide guidance during times of crisis. Contingency plans are in place for a timely response to environmental events and remediation/reclamation strategies are utilized to restore the environment.

Encana’s operations are subject to regulation and intervention by governments that can affect or prohibit the drilling, completion, including hydraulic fracturing and tie-in of wells, production, the construction or expansion of facilities and the operation and abandonment of fields. Changes in government regulation could impact the Company’s existing and planned projects as well as impose a cost of compliance.

In the state of Colorado, several cities have passed local ordinances limiting or banning certain oil and gas activities, including hydraulic fracturing. These local rule-making initiatives have not significantly impacted the Company’s operations or development plans in the state to date. Encana continues to work with state and local governments, academics and industry leaders to respond to hydraulic fracturing related concerns in Colorado. The Company recognizes that additional hydraulic fracturing ballot and/or local rule-making limiting or restricting oil and gas development activities are a possibility in the future and will continue to monitor and respond to these developments in 2016.

In Canada, the federal government and several provincial governments, including Alberta and British Columbia, have announced an enhanced focus on climate change policy in 2016 which will include an economy wide price on carbon emissions beginning in 2018. Encana continues to monitor developments, engage in consultations as appropriate and is actively managing the implementation of new climate-related policy and regulations in order to minimize the potential impact on its business.

In the U.S., the federal government has noted climate change action as a priority for the current administration and the Environmental Protection Agency has outlined a series of steps to address methane and volatile organic compound emissions from the oil and gas industry, including a new goal to reduce oil and gas methane emissions by 40 to 45 percent from 2012 levels by 2025. The reductions will be achieved through proposed regulatory and voluntary measures. Encana continues to monitor these developments, provide comment as appropriate and assess the potential impact on its business.

A comprehensive discussion of Encana’s risk management is provided in the Company’s annual MD&A for the year ended December 31, 2015.

Accounting Policies and Estimates

Critical Accounting Estimates

Refer to the annual MD&A for the year ended December 31, 2015 for a comprehensive discussion of Encana’s Critical Accounting Policies and Estimates.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Recent Accounting Pronouncements

Changes in Accounting Policies and Practices

On January 1, 2016, Encana adopted the following ASUs issued by the Financial Accounting Standards Board (“FASB”) which have not had a material impact on the Company’s Interim Condensed Consolidated Financial Statements:

●

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 have been applied prospectively.

●

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 have been applied using a full retrospective approach.

●

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. The updates require 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. The updates further clarify 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 have been applied retrospectively and resulted in a $30 million decrease in Other Assets, with a corresponding $30 million decrease in Long-Term Debt as at December 31, 2015.

New Standards Issued Not Yet Adopted

As of January 1, 2018, Encana will be required to adopt ASU 2014-09, Revenue from Contracts with Customers under Topic 606, which replaces Topic 605, Revenue Recognition, and other industry-specific guidance in the Accounting Standards Codification (“ASC”). 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 Company’s Consolidated Financial Statements.

As of January 1, 2019, Encana will be required to adopt ASU 2016-02, Leases under Topic 842, which replaces Topic 840 Leases. The new standard will require lessees to recognize right-of-use assets and related lease liabilities for all leases, including leases classified as operating leases, on the Consolidated Balance Sheet. The dual classification model requiring leases recognized to be classified as either finance or operating leases was retained for the purpose of subsequent measurement and presentation in the Consolidated Statement of Earnings and Consolidated Statement of Cash Flows. The new standard also expands disclosures related to the amount, timing and uncertainty of cash flows arising from leases. The standard will be applied using a modified retrospective approach and provides for certain practical expedients. Encana is currently assessing the standard, and expects the new standard will have a material impact on the Company’s Consolidated Financial Statements.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Non-GAAP Measures

Certain measures in this document do not have any standardized meaning as prescribed by U.S. GAAP and, therefore, are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under U.S. GAAP. These measures are commonly used in the oil and gas industry and by Encana to provide shareholders and potential investors with additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Non-GAAP measures include: Operating Earnings (Loss); Cash Flow; Free Cash Flow; Upstream Operating Cash Flow, excluding Hedging; Operating Netback; Debt to Debt Adjusted Cash Flow; and Debt to Adjusted Capitalization. Management’s use of these measures is discussed further below.

Operating Earnings

Operating Earnings (Loss) is a non-GAAP measure that adjusts Net Earnings (Loss) by non-operating items that Management believes reduces the comparability of the Company’s underlying financial performance between periods. Operating Earnings (Loss) is commonly used in the oil and gas industry and by Encana to provide investors with information that is more comparable between periods.

Operating Earnings (Loss) is defined as Net Earnings (Loss) excluding non-recurring or non-cash items that Management believes reduces the comparability of the Company’s financial performance between periods. These after-tax items may include, but are not limited to, unrealized hedging gains/losses, impairments, restructuring charges, non-operating foreign exchange gains/losses, gains/losses on divestitures, gains on debt retirement, income taxes related to divestitures and adjustments to normalize the effect of income taxes calculated using the estimated annual effective income tax rate.


	Nine months ended September 30						2016									2015												2014
($ millions)	2016			2015			Q3			Q2			Q1			Q4			Q3			Q2			Q1			Q4

Net Earnings (Loss)	$	(663	)	$	(4,553	)	$	317		$	(601	)	$	(379	)	$	(612	)	$	(1,236	)	$	(1,610	)	$	(1,707	)	$	198

After-tax (addition) / deduction:

Unrealized hedging gain (loss)		(313	)		(178	)		32			(310	)		(35	)		(66	)		107			(187	)		(98	)		341

Impairments		(938	)		(3,616	)		-			(331	)		(607	)		(514	)		(1,066	)		(1,328	)		(1,222	)		-

Restructuring charges ⁽¹⁾		(23	)		(40	)		(1	)		-			(22	)		(5	)		(20	)		(10	)		(10	)		(4	)

Non-operating foreign exchange gain (loss)		209			(606	)		(38	)		(48	)		295			(96	)		(212	)		114			(508	)		(151	)

Gain (loss) on divestitures		287			9			288			(1	)		-			-			(2	)		1			10			(11	)

Gain on debt retirement		65			-			-			-			65			-			-			-			-			-

Income tax adjustments		59			50			4			-			55			(42	)		(19	)		(33	)		102			(12	)

Operating Earnings (Loss) ⁽¹⁾	$	(9	)	$	(172	)	$	32		$	89		$	(130	)	$	111		$	(24	)	$	(167	)	$	19		$	35

(1)

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.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Cash Flow and Free Cash Flow

Cash Flow is a non-GAAP measure commonly used in the oil and gas industry and by Encana to assist Management and investors in measuring the Company’s ability to finance capital programs and meet financial obligations. Cash Flow is defined as cash from operating activities excluding net change in other assets and liabilities, net change in non-cash working capital and cash tax on sale of assets.

Free Cash Flow is a non-GAAP measure defined as Cash Flow in excess of capital investment, excluding net acquisitions and divestitures, and is used to determine the funds available for other investing and/or financing activities.


	Nine months ended September 30						2016									2015											2014
($ millions)	2016			2015			Q3			Q2			Q1			Q4		Q3			Q2			Q1			Q4

Cash From (Used in) Operating Activities	$	426		$	1,233		$	186		$	83		$	157		$	448	$	453		$	298		$	482		$	261
(Add back) deduct:
Net change in other assets and liabilities		(15	)		(18	)		(6	)		(5	)		(4	)		7		(18	)		7			(7	)		(15)
Net change in non-cash working capital		(95	)		204			(60	)		(94	)		59			58		100			110			(6	)		(141)
Cash tax on sale of assets		-			-			-			-			-			-		-			-			-			40
Cash Flow	$	536		$	1,047		$	252		$	182		$	102		$	383	$	371		$	181		$	495		$	377
Deduct:
Capital investment		779			1,952			205			215			359			280		473			743			736			857
Free Cash Flow	$	(243	)	$	(905	)	$	47		$	(33	)	$	(257	)	$	103	$	(102	)	$	(562	)	$	(241	)	$	(480)

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Upstream Operating Cash Flow, excluding Hedging

Upstream Operating Cash Flow, excluding Hedging is a non-GAAP measure that adjusts the Canadian and USA Operations revenues, net of royalties for production, mineral and other taxes, transportation and processing expense, operating expense and the impacts of realized hedging. Management monitors Upstream Operating Cash Flow, excluding Hedging as it reflects operating performance and measures the amount of cash generated from the Company’s upstream operations. Upstream Operating Cash Flow, excluding Hedging is reconciled to GAAP measures in the Results of Operations section of this MD&A. The table below totals Upstream Operating Cash Flow for Encana.


	Nine months ended September 30				2016							2015								2014
($ millions)	2016		2015		Q3		Q2			Q1		Q4		Q3		Q2		Q1		Q4

Upstream Operating Cash Flow
Canadian Operations	$	220	$	784	$	67	$	54		$	99	$	204	$	200	$	171	$	413	$	341
USA Operations		764		928		307		276			181		348		331		308		289		480
	$	984	$	1,712	$	374	$	330		$	280	$	552	$	531	$	479	$	702	$	821
(Add back) deduct:
Realized Hedging Gain (Loss)
Canadian Operations	$	122	$	366	$	-	$	55		$	67	$	129	$	109	$	101	$	156	$	49
USA Operations		236		263		55		71			110		162		108		63		92		78
	$	358	$	629	$	55	$	126		$	177	$	291	$	217	$	164	$	248	$	127
Upstream Operating Cash Flow, excluding Hedging
Canadian Operations	$	98	$	418	$	67	$	(1	)	$	32	$	75	$	91	$	70	$	257	$	292
USA Operations		528		665		252		205			71		186		223		245		197		402
	$	626	$	1,083	$	319	$	204		$	103	$	261	$	314	$	315	$	454	$	694

Operating Netback

Operating Netback is a common metric used in the oil and gas industry to measure operating performance. Operating Netbacks are calculated on a BOE basis by determining product revenues, net of royalties and deducting costs associated with delivering the product to market, including production, mineral and other taxes, transportation and processing expense and operating expense. The Operating Netback calculation is shown in the Results of Operations section of this MD&A.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Debt to Debt Adjusted Cash Flow

Debt to Debt Adjusted Cash Flow is a non-GAAP measure monitored by Management as an indicator of the Company’s overall financial strength. Debt Adjusted Cash Flow is a non-GAAP measure defined as Cash Flow on a trailing 12-month basis excluding interest expense after tax.


($ millions)	September 30, 2016		December 31, 2015

Debt ⁽¹⁾	$	4,198	$	5,333

Cash Flow		919		1,430

Interest Expense, after tax		304		452

Debt Adjusted Cash Flow	$	1,223	$	1,882

Debt to Debt Adjusted Cash Flow		3.4x		2.8x

(1)

2015 has been restated due to the adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, as discussed in the Accounting Policies and Estimates section of this MD&A.

Debt to Adjusted Capitalization

Debt to Adjusted Capitalization is a non-GAAP measure which adjusts capitalization for historical ceiling test impairments that were recorded as at December 31, 2011. Management monitors Debt to Adjusted Capitalization as a proxy for Encana’s financial covenant under its credit facility agreements which require debt to adjusted capitalization to be less than 60 percent. Adjusted Capitalization includes debt, total shareholders’ equity and an equity adjustment for cumulative historical ceiling test impairments recorded as at December 31, 2011 in conjunction with the Company’s January 1, 2012 adoption of U.S. GAAP.


($ millions)	September 30, 2016		December 31, 2015

Debt ⁽¹⁾	$	4,198	$	5,333

Total Shareholders’ Equity		6,232		6,167

Equity Adjustment for Impairments at December 31, 2011		7,746		7,746

Adjusted Capitalization	$	18,176	$	19,246

Debt to Adjusted Capitalization		23%		28%

(1)

2015 has been restated due to the adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, as discussed in the Accounting Policies and Estimates section of this MD&A.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Advisory

Forward-Looking Statements

This document contains certain forward-looking statements or information (collectively, “FLS”) within the meaning of applicable securities legislation. FLS include:

●

accelerated growth in the Core Four Assets

●

anticipated Cash Flow

●

anticipated cash and cash equivalents

●

anticipated hedging and outcomes of risk management program

●

lowering well costs and optimizing completions

●

the projections and expectation of meeting the targets contained in the Company’s 2016 corporate guidance

●

growth in long-term shareholder value

●

anticipated oil, natural gas and NGL prices

●

anticipated future cost and operating efficiencies

●

the Company’s expectation to fund its 2016 commitments and obligations from Cash Flow and cash and cash equivalents

●

managing risk, including the impact of changes to the royalty structure

●

flexibility of capital spending plans

●

estimates of reserves and resources

●

expected production and product type

●

financial flexibility and discipline, access to cash and cash equivalents and other methods of funding, the ability to meet financial obligations, manage debt and financial ratios, finance growth and compliance with financial covenants

●

level of expenditures and impact of environmental legislation and changes in laws or regulations

●

impact to Encana as a result of a downgrade to its credit rating

●

access to the Credit Facilities and shelf prospectuses

●

the declaration and payment of future dividends, if any

●

statements with respect to future ceiling test impairments

●

the continued evolution of the Company’s resource play hub model to drive greater productivity and cost efficiencies while reducing its environmental footprint

●

statements with respect to its strategic objectives

●

the adequacy of the Company’s provision for taxes and legal claims

●

anticipated proceeds and future benefits from various joint venture, partnership and other agreements

●

the possible impact and timing of accounting pronouncements, rule changes and standards

Readers are cautioned against unduly relying on FLS which, by their nature, involve numerous assumptions, risks and uncertainties that may cause such statements not to occur, or results to differ materially from those expressed or implied. These assumptions include:

●

assumptions contained in the Company’s current corporate guidance

●

data contained in key modeling statistics

●

availability of attractive hedges and enforceability of risk management program

●

effectiveness of the Company’s resource play hub model to drive productivity and efficiencies

●

results from innovations

●

the expectation that counterparties will fulfill their obligations under the gathering, midstream and marketing agreements

●

access to transportation and processing facilities where Encana operates

●

enforceability of transaction agreements

●

expectations and projections made in light of, and generally consistent with, Encana’s historical experience and its perception of historical trends, including with respect to the pace of technological development, the benefits achieved and general industry expectations

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Risks and uncertainties that may affect these business outcomes include: the ability to generate sufficient Cash Flow to meet the Company’s obligations; risks inherent to closing announced divestitures on a timely basis or at all and adjustments that may reduce the expected proceeds and value to Encana; commodity price volatility; ability to secure adequate product transportation and potential pipeline curtailments; variability and discretion of Encana’s Board to declare and pay dividends, if any; the timing and costs of well, facilities and pipeline construction; business interruption and casualty losses or unexpected technical difficulties; counterparty and credit risk; risk and effect of a downgrade in credit rating, including below an investment-grade credit rating, and its impact on access to capital markets and other sources of liquidity; fluctuations in currency and interest rates; assumptions based upon the Company’s 2016 corporate guidance; failure to achieve anticipated results from cost and efficiency initiatives; risks inherent in marketing operations; risks associated with technology; changes in or interpretation of royalty, tax, environmental, greenhouse gas, carbon, accounting and other laws or regulations; risks associated with existing and potential future lawsuits and regulatory actions made against the Company; the Company’s ability to acquire or find additional reserves; imprecision of reserves estimates and estimates of recoverable quantities of natural gas and liquids from resource plays and other sources not currently classified as proved, probable or possible reserves or economic contingent resources, including future net revenue estimates; risks associated with past and future divestitures of certain assets or other transactions or receive amounts contemplated under the transaction agreements (such transactions may include third-party capital investments, farm-outs or partnerships, which Encana may refer to from time to time as “partnerships” or “joint ventures” and the funds received in respect thereof which Encana may refer to from time to time as “proceeds”, “deferred purchase price” and/or “carry capital”, regardless of the legal form) as a result of various conditions not being met; and other risks and uncertainties impacting Encana’s business as described from time to time in its most recent MD&A, financial statements, AIF and Form 40-F, as filed on SEDAR and EDGAR.

Although Encana believes that the expectations represented by such FLS are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the assumptions, risks and uncertainties referenced above are not exhaustive. The FLS contained in this document are made as of the date of this document and, except as required by law, Encana undertakes no obligation to update publicly or revise any FLS. The FLS contained in this document are expressly qualified by these cautionary statements.

Encana is required to disclose events and circumstances that occurred during the period to which this MD&A relates that are reasonably likely to cause actual results to differ materially from material forward-looking statements for a period that is not yet complete that Encana has previously disclosed to the public and the expected differences thereto. Such disclosure can be found in Encana’s news release dated November 3, 2016, which is available on Encana’s website at www.encana.com, on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Oil and Gas Information

National Instrument 51-101 of the Canadian Securities Administrators imposes oil and gas disclosure standards for Canadian public companies engaged in oil and gas activities. The Canadian protocol disclosure is contained in Appendix A and under “Narrative Description of the Business” in the AIF. In addition, certain disclosures have been prepared in accordance with U.S. disclosure requirements. The Company’s U.S. protocol disclosure is included in Note 27 (unaudited) to the Company’s Consolidated Financial Statements for the year ended December 31, 2015 and in Appendix D of the AIF.

A description of the primary differences between the disclosure requirements under the Canadian standards and under the U.S. standards is set forth under the heading “Reserves and Other Oil and Gas Information” in the AIF.

Natural Gas, Oil and NGLs Conversions

The conversion of natural gas volumes to BOE is on the basis of six thousand cubic feet to one barrel. BOE is based on a generic energy equivalency conversion method primarily applicable at the burner tip and does not represent economic value equivalency at the wellhead. Readers are cautioned that BOE may be misleading, particularly if used in isolation.

Play and Resource Play

Play is a term used by Encana which encompasses resource plays, geological formations and conventional plays. Resource play is a term used by Encana to describe an accumulation of hydrocarbons known to exist over a large areal expanse and/or thick vertical section, which, when compared to a conventional play, typically has a lower geological and/or commercial development risk and lower average decline rate.

Additional Information

Further information regarding Encana Corporation, including its AIF, can be accessed under the Company’s public filings found on SEDAR at www.sedar.com, on EDGAR at www.sec.gov and on the Company’s website at www.encana.com.

Encana Corporation

Management’s Discussion and Analysis

Prepared using U.S. GAAP in US$

Exhibit 99.3

LOGO

Encana Corporation

Supplemental Financial Information (unaudited)

Exhibit to the September 30, 2016 Interim Condensed Consolidated Financial Statements

Consolidated Interest Coverage Ratios

The following ratios are provided in connection with the Company’s continuous offering of medium term notes and debt securities and are for the twelve month period then ended. The ratios have been calculated based on the Company’s consolidated financial results prepared in accordance with generally accepted accounting principles in the United States.


For the twelve months ended September 30	2016		2015

Interest coverage on long-term debt (times)

Net Earnings ⁽¹⁾		(6.7)		(9.7)

Cash Flow ⁽²⁾		3.9		3.3

(1)

Net Earnings before income tax and borrowing costs, divided by borrowing costs, where borrowing costs consist of interest expense on long-term debt, including the current portion.

(2)

Cash Flow before income tax and borrowing costs, divided by borrowing costs, where borrowing costs consist of interest expense on long-term debt, including the current portion. Cash Flow is a non-GAAP measure defined as Cash from Operating Activities excluding net change in other assets and liabilities, net change in non-cash working capital and cash tax on sale of assets.

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Douglas J. Suttles, President & Chief Executive Officer of Encana Corporation, certify the following:

1.	*Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Encana Corporation (the “issuer”) for the interim period ended September 30, 2016*.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control – Integrated Framework.

5.2	*ICFR – material weakness relating to design:* N/A

5.3	*Limitation on scope of design*: N/A

Reporting Changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2016 and ended on September 30, 2016 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 3, 2016

/s/ Douglas J. Suttles

Douglas J. Suttles

President & Chief Executive Officer

Exhibit 99.5

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Sherri A. Brillon, Executive Vice-President & Chief Financial Officer of Encana Corporation, certify the following:

1.	*Review*: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Encana Corporation (the “issuer”) for the interim period ended September 30, 2016.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control – Integrated Framework.

5.2	*ICFR - material weakness relating to design:* N/A

5.3	*Limitation on scope of design*: N/A

Date: November 3, 2016

/s/ Sherri A. Brillon

Sherri A. Brillon

Executive Vice-President & Chief

Financial Officer

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 6-K ENCANA CORP For: Nov 03

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed