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EnCana eyes British Columbia offshore as possible new venture Driving forces behind new company prepared to unload up to C$1 billion in assets, but Alberta Energy’s Gwyn Morgan wants EnCana to take advantage of buyers’ market Gary Park PNA Canadian Correspondent
British Columbia’s offshore beckons as a new exploration target for EnCana Corp., the company to be created from the merger of Alberta Energy Co. Ltd. and PanCanadian Energy Corp.
In presenting an EnCana organizational structure to investors Feb. 21, the West Coast was cited as one of a number of new ventures projects.
While neither AEC nor PanCanadian holds any acreage in the region, they have registered interest just as the British Columbia and Canadian governments are giving their most serious consideration in 30 years to removing exploration bans on 54 million acres.
But, at the same time, the long-time leaseholders — Shell Canada Ltd., Petro-Canada and Chevron Canada Ltd. — are maintaining a strict arm’s length view of the offshore, suggesting that even an end to the government moratoriums would be unlikely to spark their interest. Gas a target In a series of roadshow presentations and conference calls, AEC and PanCanadian executives talked more about growth than shrinkage beyond the April 5 target they have set for completion of the merger.
But they did say EnCana will be ready at the outset to unload C$500 million to C$1 billion of midstream processing and pipeline assets, but will just as quickly be hunting for upstream gas buys, especially in the U.S. Rocky Mountains, Alberta and British Columbia.
AEC also announced on Feb. 22 it has hired Waterous & Co. as its exclusive agent to seek proposals for the sale of certain oil and gas producing assets in Alberta and Saskatchewan. The properties produced 9,500 barrels of oil equivalent per day in 2001, generating net operating income of C$69 million.
“This is a time of many sellers and not many buyers for (upstream) assets that are on the market ... and we are sure in a position to take advantage of that opportunity,” said AEC chief executive officer Gwyn Morgan. Cash generation In his upbeat message to investors and employees, he said EnCana will “generate a tremendous amount of cash. We’re not only going to be able to grow this business with our cash flow, we’re going to have extra money for acquisitions.”
In releasing fourth-quarter 2001 results, AEC had an 83 percent drop in profit from a year earlier to C$80 million and PanCanadian was off 74 percent at C$91 million — not out of line with their North American peers and an indication, Morgan, said of how EnCana will perform.
“That’s going to be the toughest quarter that the industry is going to go through for a long time,” he said.
For the full year, AEC has profits of C$824 million, second only to its C$922 million in 2000, PanCanadian notched a record C$1.3 billion, up C$300 million from 2000. Weak demand cited PanCanadian said it believes weak demand, excess OPEC capacity and rising non-OPEC production will keep benchmark oil prices at $20 a barrel this year, while natural gas prices will remain soft due to sluggish industrial demand and high inventories.
That outlook for gas in particular has prompted Lehman Brothers analyst Thomas Driscoll to question EnCana’s ability to meet its targeted capital spending of C$3.8 billion for 2002 through internally-generated funds.
Morgan said continuing low gas prices will only delay capital spending in the second half of 2002, but will “not affect our ability to come back very strongly ... once we get the right kind of conditions. (EnCana) has a lot of flexibility in term of ability to adapt.”
He is optimistic that EnCana will maintain production at its forecast level for this year of 721,000 barrels of oil equivalent per day, largely based on relatively small incremental capital requirements per unit of growth.
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