EnCana on full spin cycle
CEO Gwynn Morgan, CFO John Watson set to leave; deal pending to sell AECO Hub gas storage; hopes of completing Valero deal fallen through
Petroleum News Canadian Contributing Writer
Without a doubt, EnCanans live in interesting times.
The employees of Canada’s powerhouse gas producer must feel their heads are about to swivel off their shoulders as they try to keep pace with unfolding events.
Here’s the latest batch of highlights:
• Chief Executive Officer Gwyn Morgan and Chief Financial Officer John Watson will take their leave over the next two months from posts that have seen them shape a company created four years ago from the merger of Alberta Energy Co. and PanCanadian Energy.
• EnCana is starting to roll out plans for a new head office that could tower over rivals in downtown Calgary.
• Hopes of completing a US$2 billion deal with Valero Energy to convert an Ohio refinery to process oil sands production have fallen through.
• A deal is pending to sell North America’s largest independent natural gas storage network.
• If ConocoPhillips pulls off its blockbuster takeover of Burlington Resources, EnCana could lose its coveted role as North America’s largest gas producer.
And, in the thick of all this, rumors persist that it remains in the crosshairs of such global giants as Chevron and Royal Dutch Shell.
Both Morgan and Watson joined Alberta Energy Co. when it was created by the Alberta government in 1975 to develop energy resources on military bases and, now that both have turned 60, they feel the time has come to take a different path in their lives.
Morgan, who first started calling his employees EnCanans — a label that causes many to cringe — stunned the industry when he decided to let go of the reins.
Watson’s announced departure only heightened takeover talk, despite Morgan’s insistence that no discussions have taken place with suitors and he is not aware of any looming offers.
The coincidence of the timing was nothing more than that and should be seen only as part of the “natural executive succession” at the company, said EnCana spokesman Alan Boras.
New headquarters building plannedBut Morgan is not going without leaving a landmark legacy.
To consolidate EnCanans, who are scattered through five Calgary office buildings, the company has decided to reach for the sky.
Final plans have yet to be unveiled, but the “signature” project is expected to cost up to C$700 million, contain 2 million square feet and rise above the nearby 62-story Petro-Canada tower which dominates the city skyline.
In keeping with EnCana’s sense of grandeur, the company has hired the English firm of Foster and Partners as its lead architect.
The firm has been hired to work on the new World Trade Center, having already left its mark with the Reichstag building housing Germany’s government in Berlin, London’s Millennium Bridge and a London high-rise known, because of its shape, as the Gherkin or pickle.
Foster said in a new release it is thrilled to have the chance to “capture the collective consciousness of Calgary.” Whether that means “Stampede-them” no one is saying.
Search for refineryOn the more serious business front, ending a tentative partnership with Valero was a blow to EnCana’s oil sands strategy after the largest U.S. refiner balked at converting its 170,000 barrel-per-day Lima refinery in Ohio to process bitumen and heavy crudes from EnCana’s oil sands properties.
EnCana had viewed the refinery refit as a better economic proposition than gambling on building its own upgrader in northern Alberta.
But Valero Chief Operating Officer Bill Klesse said the US$2 billion cost of conversion “just did not allow for returns that were sufficient to compete with our other strategic investment opportunities.”
The initial deal was made with Premcor Refining Group, which was swallowed up earlier this year in a US$6.9 billion takeover by Valero.
Wilf Gobert, vice chairman of Peters & Co., suggested Valero decided to give priority to major capital commitments to produce low-sulfur fuels in the United States.
Incoming EnCana Chief Executive Officer Randy Eresman said efforts will now turn to finding a North American refinery that might be interested in teaming up with EnCana in exchange for some of the bitumen production.
The company said more than 20 companies have expressed interest in EnCana’s oil sands initiatives, including a 10-fold increase in production to 500,000 bpd over the next 10 years, and a short list will be developed early in 2006.
Company also unloading gas storage assetsAlso on the agenda is the conclusion of a deal to unload non-core gas storage assets including the AECO Hub in Alberta that holds 135 billion cubic feet of gas, the bulk of the network’s total capacity of 174 billion cubic feet.
Analysts already believe EnCana will fetch well above US$1 billion, pushing its total divestitures above US$10 billion, including a recent US$697 million disposal of its natural gas liquids business to Provident Energy Trust.
If the ConocoPhillips-Burlington transaction is completed, EnCana will have a tough job hanging on to the top spot among North America’s gas producers.
The combined output of the two U.S. companies is about 3.6 billion cubic feet per day, almost 400 million cubic feet per day ahead of EnCana’s third-quarter sales volumes this year.
But EnCana is in full flight, developing its resource plays down the slopes of the Rocky Mountains in the United States and Canada, in a field where Burlington has considerable expertise.
Over the longer-term ConocoPhillips is strongly placed for major growth if the North Slope and Mackenzie Delta projects come on stream.