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Leaner Encana ready for combat
Gary Park For Petroleum News
Encana, once North America’s largest natural gas producer and the bellwether Canadian energy company, is emerging from its painful makeover refocused on liquids and in fighting trim to extend its run of acquisitions last year.
Under Chief Executive Officer Doug Suttles, the company is not spooked by the oil price crash and the continuation of dismal gas prices.
It has downsized its workforce by 25 percent, slashed its capital budget by about 25 percent or US$700 million from 2014 to US$2 billion-$2.2 billion, assuming it can reduce costs by 50 percent, and reduced its key operating areas to seven from 28.
More spending to oil
For several quarters, Encana has directed more of its spending to oil production, posting volumes of 106,400 barrels per day in the final quarter of last year, up 61 percent from a year earlier, while dropping gas output to 1.7 billion from 2.7 billion cubic feet per day over the same period.
In September it set a new corporate benchmark for acquisitions, when it took over Texas-based Athlon Energy for US$5.9 billion, when oil prices were still in the upper realms, along with buying Freeport-McMoRan’s Eagle Ford holdings for US$3.1 billion and selling its Bighorn acres in Alberta for US$1.8 billion.
But Suttles believes the company is in better shape to withstand a market buffeting because of an employee-led “cultural” transformation, proving to him that large organizations that are vulnerable to market fluctuations can gain strength when they have the right structures and priorities in place.
“We have a highly driven culture and a proven ability to act decisively,” he told analysts. “Consequently, if anyone can prosper through this part of the commodity cycle, I’m convinced it will be Encana.”
Company ready to act To back his words with deeds, Suttles said Encana is ready to act “if the right opportunity opens up in this environment and that might be for buying something or selling something. The downturns are where the big exciting stuff happens.”
He said Encana’s cash flow is enough to cover its costs, while considering acquisitions.
“We’re at record levels of tire-kicking at the moment ... the longer this environment persists, the more likely something will occur,” Suttles said.
Encana anticipates combined production from its Permian, Eagle Ford, Montney and Duvernay assets will grow to 240,000 barrels of oil equivalent per day in the final quarter of 2015 from 183,000 boepd a year earlier.
Suttles said those plays can generate cash flow and production growth even if low commodity prices extend to 2020.
Arthur Grayfer, an analyst with CIBC World Markets, said that even though final quarter 2014 results were “negative,” with the company’s operating profit slumping by 84.5 percent to US$35 million, the updated guidance for 2015 is “positive as capex is down about 25 percent, but production guidance is down about 2 percent.”
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