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Encana wages global fight Slashes spending, payroll, while warning producers outside North America ‘this part of the planet knows how to get efficient’ GARY PARK For Petroleum News
Encana is talking tough and acting that way as it throws down a gauntlet to global oil and natural gas producers while again wielding the axe within its own ranks.
Chief Executive Officer Doug Suttles said that before the world takes on North America it had “better be ready because this part of the planet knows how to get efficient and you’re seeing it every day.”
Without singling out OPEC by name he said companies such as his own are cutting costs to put themselves on the same footing as foreign oil-producing companies.
In keeping with Suttles’ meaner and leaner message, Encana slashed its 2016 capital budget by another 40 percent amid continuing financial losses and announced plans to reduce its work force by another 20 percent.
Capital spending for this year is now targeted at US$900 million and US$1 billion, compared with the US$1.5 billion-US$1.7 billion it had allocated in December, while its payroll is facing another 500 layoffs to settle around 2,500.
Employees are also being asked to take sabbaticals or contract positions or are being urged to leave office jobs for field positions.
“The job reductions, not only at Encana, but across the industry, have been as severe as I’ve ever seen in 33 years,” Suttles told analysts.
The latest round of cuts will mean Encana has shed about 55 percent of its staff since 2013 when Suttles took over the helm - an “incredible” response to tough times in his experience.
Saudi oil minister offers advice His challenge to global producers came only two days after Saudi Arabian Oil Minister Ali Al-Naimi told North American producers at a Houston conference to lower their costs or “get out.”
“It sounds harsh and unfortunately it is, but it is the most efficient way to rebalance the markets,” Al-Naimi said.
“Cutting low-cost production to subsidize higher-cost supplies only delays an inevitable reckoning,” he said, while denying that Saudi Arabia is trying to fend off shale producers through a price war.
Encana, which produces most of its oil and gas from shale plays in Texas, British Columbia and Alberta, said output from its plays is expected to decline by about 10 percent to 340,000-360,000 barrels of oil equivalent per day from its previous target of 340,000-370,000 boe per day and full-year production in 2015 of 405,900 boe per day.
The company’s cash flow plunged by half to US$1.4 billion last year and its net loss ballooned to US$5.2 billion, mostly stemming from impairments of US$4.1 billion and a foreign exchange loss of US$700 million.
Suttles said the company’s cost-cutting mission will enable it to compete in a “lower-for-longer oil-price environment.”
“It’s a tough time to be someone who works in the oil and gas industry,” he said.
Analysts concerned Regardless of all the cuts, analysts remain concerned about Encana’s ability to cover its expenses.
National Bank Financial analyst Kyle Preston said the company has “definitely been able to grind down costs quite aggressively,” while adding that spending will still outpace cash flow.
Morningstar analyst David Meats credited Encana with achieving some success through its cost-cutting by lowering capital and operating costs by US$400 million in 2015 and planning to trim another US$200 million-US$250 million this year.
Preston said investors are already rewarding companies for making hard decisions..
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