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Vol. 24, No.46 Week of November 17, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

New home, new name

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Natural gas power Encana moving headquarters to Denver; relabeling as Ovintiv

Gary Park

for Petroleum News

It made a formal entry into the Canadian oil patch in 1973 when the Alberta government launched Alberta Energy Co. as a government corporation to offset Arab oil embargos and subsequent price aftershocks.

Now all those deep Alberta and Canadian roots have been severed as AEC’s successor company Encana chose Oct. 31 - neither a Trick nor a Treat for most Canadians - to rename itself Ovintiv and later announce its headquarters would be moved from Calgary to Denver.

The word came as no surprise to Gwyn Morgan, AEC’s founding chief executive officer, who said the company’s center of gravity had been shifting for years, though he conceded “it’s the sort of step that all of us hoped wouldn’t happen, especially the employees and the guy who founded the company.”

Alberta blames Trudeau

Alberta Premier Jason Kenney was less forgiving, saying the shift of Encana’s corporate domicile to the U.S. and dropping the tie to Canada in the corporate name is indicative of a “broader decline” of the Canadian energy sector and a deliberate policy of Prime Minister Justin Trudeau’s government to phase out the oil sands.

For Kenney it was a blow to his strategy since taking power in April of lowering corporate taxes in hopes of reviving capital investment, battling to get pipelines out of Alberta to new markets.

Alberta Energy Minister Sonya Savage said Trudeau’s signal on the importance of oil and gas to the Canadian economy has been “abysmal. It’s very difficult for investors to have confidence in Canada. This is a very hostile environment for producers.”

Cenovus Energy CEO Alex Pourbaix called the move a “tragedy for Canada. To see a company of that importance to Canada now exit its head office is a tough day.”

The only comment from Trudeau’s government came from Natural Resources Canada, which said it was “disappointed” with Encana’s decision, but promised to “ensure that Canada and Alberta remain competitive and that our energy sector remains a source of good, middle-class jobs.”

Just 4 employees in 1975

In 1975 AEC employed just four people, who quietly developed a strategy for the company’s next move when it attracted huge public support by selling half its shareholding at C$10 a share to raise C$75 million, leaving the balance under government control.

Over the next 20 years AEC embarked on a rapid expansion path, buying a stake in the Syncrude Canada oil sands consortium, opening a natural gas storage facility that later became AECO, the Alberta trading hub, and started its own steam-powered oil sands project.

Then it moved speedily into the big leagues, merging with PanCanadian Petroleum in a C$23 billion deal to create Encana, while selling its international holdings to pursue its development of unconventional gas resources in North America.

In 2008, Encana split in half - one company under its existing name to focus on natural gas and one labeled Cenovus to hold most of its parent company’s oil assets (conventional and oil sands).

It didn’t take long before Encana saw the folly of its ways in unloading oil. A corporate strategy of doubling gas production by 2015 was abandoned as it started to build a portfolio in natural gas liquids.

Suttles hired in 2013

After years of floundering in its search for a path to success, Encana entered a new phase after Chief Executive Officer Randy Eresman ended his eight-year term by hiring Doug Suttles as president and CEO in mid-2013.

By then Encana had faded from its glory days, which briefly saw the company hold the largest market capitalization of any listing on the Toronto Stock Exchange, lead North America in gas production and puts its stamp on the Calgary skyline by erecting The Bow, a 57-storey tower as its headquarters.

Suttles arrived at Encana after a series of senior positions with ExxonMobil and BP (including president of BP Exploration (Alaska) and later as BP’s lead executive in the aftermath of the Deepwater Horizon.

He got compensation of C$15.5 million last year, by which stage he had delivered a strong hint of changes to come when he moved his own operations from Calgary to Denver, citing personal reasons.

US shale oil

That came after several moves over the years to boost Encana’s presence in U.S. shale oil, including the US$5.5 billion acquisition of Newfield Exploration a year ago to add major operations in Oklahoma - deals that some analysts viewed as over-priced.

Production last year in Canada totaled 209,000 barrels of oil equivalent per day in the Montney and Duvernay plays, and 313,000 boe per day from the Anadarko, Permian, Eagle Ford, Uinta and Williston plays.

Suttles told analysts that setting up shop in Denver will give Encana (Ovintiv) access to a much larger source of investment from U.S. index funds, which have grown in popularity as exchange traded funds.

(Encana was always well understood as a blending of Energy and Canada; the choice of Ovintiv was explained by Encana as standing “for our commitment to deliver unmatched value through continuous innovation” - triggering a “whatever” response from many observers.)

Suttles said the rebrand was driven by the market’s perception that the company was primarily a natural gas enterprise, hurting its valuation.

“We’re proud of our company’s history, but we have meaningfully transformed our business ... and it is important that transformation is recognized.”

Foreign buyer more possible

Generally overlooked in the fallout is the prospect that Encana’s move to the U.S. will open the door for a foreign buyer to acquire the company without making pledges to the Canadian government about job security or investment to gain federal approval.

The fact that Encana’s share price has tumbled almost 70% in the last two years and that it has no controlling shareholder could make it an attractive target for a prospective buyer.

Attorneys say such a bid would not face a review under the Investment Canada Act, ICA, which requires a commitment over three to five years that deals for companies worth more than C$1 billion would generate a “net benefit” to Canada and “significant undertakings (to the federal minister of Innovation, Science and Economic Development)” on how a new owner would operate a Canadian business.

“Once the ICA no longer applies to a transaction, the government certainly loses the ability to get those net benefit undertakings,” said Chris Hersh at the law firm of Cassels Brock & Blackwell in Toronto.



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