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Encana moves cautiously Under new leadership, hires outsiders to craft new strategy after being blindsided by single-minded pursuit of resource gas plays Gary Park For Petroleum News
There was little fanfare in June when Encana occupied its new downtown Calgary headquarters — not quite what was envisioned when plans for The Bow were unveiled in 2006 when the company was North America’s largest natural gas producer and around the time when it held the largest market-cap on the Toronto Stock Exchange.
At 58-storeys, The Bow is Western Canada’s tallest office tower, with stunning views of the Canadian Rockies to the west and the endless Prairies to the east.
But, these days, Encana’s head no longer bulges with thoughts of limitless growth in the resource gas fields of Canada and the United States.
In fact, the outlook has been so grim in the last couple of years that the company resumed its chase of oil and natural gas liquids, which it unloaded almost four years ago in spinning off Cenovus Energy as a standalone producer of its oil sands and conventional oil holdings.
Cenovus has been a sizzling success story over most of that period and Encana has floundered, reflecting the old oil patch motto: “Dear Lord, Please give us another boom. We promise not to mess this one up.”
It took less than a year for Encana’s world to turn on its head, as the shale gas revolution spread across North America, gas prices started their dive and traditional U.S. markets evaporated — all acting as a drag on share values.
Suttles appoints team Unhappiness among investors culminated at the start of 2013 when Randy Eresman resigned after seven years as chief executive officer and a lengthy search for his replacement ended in June when Doug Suttles, former chief operating officer of BP Exploration & Production, moved into the heady heights of The Bow.
Suttles first move was to “access external help” from numerous disciplines and appoint a team to evaluate Encana’s vast oil and gas holdings and operating methods to determine how each stacks up against its competitors and to craft a new blueprint for the company.
Without apology, he has said the strategy will not be completed until late this year and not be implemented until 2014, by which time Encana will have been in a state of uncertainty for a full year.
Suttles has said his first step has been to look at the quality of the asset base, the quality of the company’s capabilities and how well it is performing.
“Before I make bold statements about strategy and direction, I want to make sure I understand today’s reality of where we are and that then becomes the foundation for helping us think where we want to go,” he said.
Capital budget cut To date, Suttles has offered only a few crumbs to indicate what trail he is following, first by cutting $200 million from this year’s capital budget that will likely see spending end up close to $3 billion.
He is also rethinking the goal of using joint ventures to develop Encana’s North American resource assets and indicated he will reconsider the pursuit of 70,000 barrels per day of oil and liquids production.
“We haven’t actually eliminated any course of action as part of the strategy, other than we’re not going to get out of the oil and gas business — I can confirm that,” he told analysts July 24. “Our asset base and core strengths will play a big role in our future.
“We are taking a hard look at our competitive position in a play by play sense.”
Under Eresman, joint ventures were portrayed as the key to Encana’s future by injecting immediate cash through the sale of interests in shale prospects and accelerate development of those assets.
The last deal of that type was announced seven months ago when a 49.9 percent stake in Alberta’s Duvernay liquids-rich shale platy was sold to PetroChina for $2.2 billion, after an earlier $5 billion deal with PetroChina fell through.
Suttles said he does not want to lock into any similar commitments, which he said “do restrict our flexibility because they consume a lot of your capital.”
$650M in asset sales Chief Financial Officer Sherri Brillon underscored that thinking, noting that Encana has collected $650 million so far this year from asset sales.
But she was unwilling to say that the goal of $1 billion for 2013 will be reached because the industry is “in a buyers’ market.”
For the second quarter of this year, Encana produced 2.76 billion cubic feet per day of gas, down 500 million cubic feet per day from peak levels in 2011, while its oil and liquids output is currently 55,000 bpd.
Suttles has said he believes the gas sector will be in a “modest” price environment for some time and the business ought to be run on that assumption.
Because of the cost-intensive nature of the business, the emphasis will be on efficiencies that “I’m sure will be part of our plans going forward,” he said.
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