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Canada’s Independents being independent Encana, Talisman take different routes in overhauling businesses Gary Park For Petroleum News
Two of Canada’s largest independent oil and gas producers have a sharply contrasting view of their destinies.
Encana, after a year under new leadership, is convinced it is beating the clock in its corporate makeover.
But Talisman Energy, guided by a caretaker chief executive officer, could be on the verge of disappearing altogether after years of speculation.
Having pulled Encana off its single-tracked pursuit of natural gas to chase production of oil and natural gas liquids, Chief Executive Officer Doug Suttles told analysts “we generally think we’re one or two years ahead on our strategy delivery,” which is focused on five main areas - two in Western Canada, three in the United States.
Although Encana’s profits slumped to US$271 million in the second quarter from US$730 million a year earlier (with cash flow dipping to US$656 million from US$665 million), Chief Financial Officer Sherri Brillon said the company is no longer outspending its cash flow and expects to generate US$500 million in free cash flow this year.
Suttles said “the first thing (Brillon) is trying to find is a bigger closet to put all the money in.”
The second quarter aside, Encana is now aiming to reach total cash flow for the year of up to US$3.6 billion, well ahead of its earlier high-end goal of US$3 billion, while spending will come close to US$2.8 billion, partly reflecting its US$3.1 billion acquisition of Eagle Ford assets.
Liquids production up Oil, condensate and gas liquids output is forecast to achieve the range of 86,000-91,000 barrels per day (earlier guidance targeted 68,000-73,000 bpd), compared with a mere 29,000 bpd in 2013.
AltaCorp Capital analyst Dirk Lever said the “transformation is happening really fast” and is far ahead what he would have predicted a year ago.
He said cost cutting and higher production has helped, although with some good fortune in asset sales and purchases.
More deals could be in the works, with industry sources predicting that Encana could soon unload its troublesome Deep Panuke natural gas project offshore Nova Scotia.
They claim Encana is now working with financial advisers in hopes of fetching C$1 billion-C$2 billion from a possible sale before the end of 2014, adding to US$7.3 billion in deals so far this year.
Deep Panuke came on stream last December after three years of delays and contributed more than 30 percent of Encana’s operating cash flow of US$1.1 billion in the first quarter, delivering an average 253 million cubic feet per day, or 9 percent of total company gas volumes.
But Deep Panuke contributes no oil or gas liquids, meaning it “doesn’t really fit into our portfolio,” Brillon said.
For those Encana investors who were able to secure shares in PrairieSky Royalty when it was spun off in May to develop a chunk of Encana’s royalty lands in central and southern Alberta the initial results were promising. The parent company also has reason to be grateful it retained a 54 percent stake in the assets.
The first month of production to June 30 averaged 15,664 barrels of oil equivalent per day (44 percent crude oil, 10 percent gas liquids and 46 percent natural gas), posting a profit of C$23.9 million and leaving the company with working capital of C$57.4 million.
Investors now hope PrairieSky will generate more cash flow by allowing third parties to develop its oil and gas resources with span 5.2 million acres.
The shares have remained comfortably above their initial public offering level of C$28, topping C$40 in early July as investors were drawn by the prospect of a stable dividend.
Talisman shares languish Talisman is chasing a different destiny as the clock runs down on the promise by Hal Kvisle to end his two years as chief executive officer by late 2014.
Fleetingly, it seemed a breakthrough was at hand on July 23 when the company took the unusual step of confirming it had been approached by Spain’s Repsol “with regards to various transactions,” while adding “there is no assurance that any transaction will be agreed.”
Since it got bogged down in a huge oil venture in war-torn Sudan as part of its drive to round up operations on a global scale, Talisman shares have languished far behind their perceived value and speculation has been rife that a takeover is inevitable.
But word in a Bloomberg report that a Repsol bid was in the works was as close as Talisman has come to a deal, though there was no indication whether that would involve the entire company, which has a market value of about C$12.2 billion.
All assets open to bids Kvisle has put the word out that all assets are open to bids as he tries to right-size the company, while some investors have suggested the logical move is to split operations in the Americas and Southeast Asia to facilitate a sales process.
What Kvisle has made no secret of is his desire to offload Talisman’s North Sea assets, which are seen as an obstacle to improved financial and operating performance.
He said the North Sea still has a “very large amount of oil left,” but also admitted that “the challenge is controlling the costs of everything that we do,” especially given that the North Sea relies on old equipment that has been around for decades.
Other candidates for sale could include holdings in the Eagle Ford, where Talisman has been squeezed by rising costs.
But what Kvisle has indicated he’d like to retain is the company’s Western Canadian operations, its U.S. Marcellus shale operations and its interests in Malaysia and Vietnam.
However, his bottom line is clear. “For the right price, we’ll do anything,” he said.
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