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EnCana strides on to world stage, but gets only lukewarm market reception Expected to make early moves to shrink staff, sell off non-core assets, blend two divergent corporate cultures; analysts say company must grow beyond North America Gary Park PNA Canadian Correspondent
Tightly wrapped in the Canadian flag, EnCana Corp. has embarked on its journey to turn a Canadian-based company into a “world-class” performer.
The official launch April 8 on the New York and Toronto stock exchanges was an occasion for fanfare and hoopla.
More than 2,000 EnCana employees gathered in Calgary and other company locations to hear chief executive officer Gwyn Morgan again trumpet his ambitions for the new entity.
“This is truly an historic day for our industry and our home country, Canada, but it’s also historic for employees and communities wherever we operate in the world — from Denver to Casper to Quito and London,” he said.
“Our mission is to build a global, world-class company, yet retain the agility of a small company, where high performance teams are free to create and act upon opportunities and be rewarded for success.
“We will create our own unique and vibrant EnCana brand. We will be accountable, empowered employees propelled by a relentless desire to be best in class.” Exchange trading starts The moment of highest symbolism was the start of trading at the New York Stock Exchange, where the success or failure of EnCana will largely be determined.
Chairman David O’Brien was joined on the exchange floor by Salt Lake City skating gold medallists, Jamie Sale and David Pelletier.
“EnCana represents the bringing together of a pair of great Canadian companies (PanCanadian Energy Corp. and Alberta Energy Co. Ltd.) to create a world-class performer. So it’s fitting to be here with two Canadians who together created a world championship pair,” O’Brien said.
From the outset, EnCana, valued at C$23 billion, grabbed fourth spot on the list of Canada’s largest publicly traded companies, trailing three banks. The next largest oil and gas firms are Suncor Energy Inc. in 15th spot and Petro-Canada in 17th. Early trading slow But the early trading scarcely matched the expectations, with trading volume on the opening day accounting for only 0.2 percent of the company’s 470 million shares. Market gains were modest to begin with, then got caught in the downdraft as oil prices dropped.
Not quite what Morgan has in mind, when he predicts EnCana’s size and growth prospects will propel it to the top of U.S. investors’ stock lists and push it ahead of U.S. rivals in market valuations.
However, many analysts suggested it was too soon to be surprised or disappointed, especially since investors looking to position themselves would have been more likely to purchase either PanCanadian or AEC shares in the run-up period to EnCana’s debut.
They also said it will take time for U.S. portfolio managers to become acquainted with EnCana. Home front rumblings On the home front, there were inevitable rumblings of discontent among almost 4,000 employees who have been told to put out of sight any trappings from their past.
T-shirts, jackets, briefcases — anything bearing PanCanadian or AEC logos — are not part of the new image.
“EnCana is not two companies, but one,” Morgan said. “There is no room for an ‘us’ versus ‘them’ mindset.”
But the winners and losers argument persists among employees, despite attempts by Morgan and O’Brien to promote EnCana as a “merger of equals.”
Among the employees, many — some expect hundreds — will soon be more equal than others.
Major job cuts are likely to occur this month as a key part of Morgan’s promise to shareholders that the combined company can build production while lopping C$250 million off its operating costs.
Once the staff shuffle is completed and up to C$1 billion in unwanted assets — mainly midstream natural gas and processing facilities — are identified, EnCana will be able to get on with its greatest challenge, growing daily output from 720,000 barrels of oil equivalent this year to 1.1 million barrels by 2005. International growth Morgan has said the Western Canada Sedimentary Basin remains the lifeblood of EnCana, but is leaving no doubt that international growth prospects are vital as the WCSB continues to mature.
High on the list is Ecuador’s Oriente Basin, where production is forecast to double to 100,000 barrels per day by mid-2003.
EnCana also inherits a strong position in the U.S. Rocky Mountains, the Gulf of Mexico, the British North Sea and Canada’s East Coast offshore and is starting to explore in the United Arab Emirates, Azerbaijan, Australia and Brazil.
Also in the category of new ventures is Alaska’s North Slope and the Mackenzie Delta, where EnCana’s leaders have yet to signal their intentions. Beyond North America David Stenason, an analyst with Scotia Capital Corp., said he believes EnCana’s next step will be to grow beyond North America, exploiting its size and financial power to take on risks that present “upside opportunity.”
Peter Linder, with Research Capital Corp., agreed EnCana can boost production through projects in Canada over he near term, but will eventually be faced with the need to make international corporate acquisitions.
The hope is that sheer size will put EnCana on the radar screen of investors in the U.S. and Europe, allowing it to trade at multiples only large entities can attract.
“We are not on the kind of treadmill that a lot of our competitors are,” said Morgan. “We believe we can have a company whose asset base is the strongest, whose growth curve s the best, whose cost of production is the lowest, whose balance sheet is the best and who operates in countries that are very stable and very sound places to be. It’s hard to see why that company wouldn’t be in the top multiple stock in the sector.”
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