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Trudeau under fire
Encana founder says ‘disastrous’ carbon tax underlies Newfield Exploration purchase
Gary Park for Petroleum News
Canada is fast becoming “irrelevant” in the global energy industry under the disastrous climate-change policies of Prime Minister Justin Trudeau - a trend that has been accelerated by a US$7.7 billion acquisition of Houston-based Newfield Exploration by Calgary-based Encana.
That blunt assessment comes from Gwyn Morgan, the founder and former chief executive officer of Encana which he had groomed to join the “biggest and the best” world energy companies.
“I’m deeply saddened that, as a result of the disastrous policies of the Trudeau government, what was once the largest Canadian-headquartered energy producer now sees both its CEO (Doug Suttles) and the core of its asset base located in the U.S.,” he said.
Unconventional focus Under the blockbuster corporate deal, Encana will acquire Newfield for US$5.5 billion in an all-share arrangement and assume US$2.2 billion of Newfield’s debt, boosting Encana’s production to 577,000 barrels of oil equivalent per day, making it the second largest producer of unconventional resources after Suncor Energy on the continent.
Analysts estimate the transaction will flip Encana’s production profile from being 59 percent weighted in Canada to about 62 percent in the U.S. led by prized shale holdings in the Anadarko Basin.
Encana got an immediate chilly reception on the markets, with its shares falling 12 percent.
“Investors will struggle, at least initially, just accepting that shift, because they really haven’t talked about having to add a core play,” said Jennifer Rowland, an analyst with Edward Jones.
She said that the portfolio repositioning that Suttles launching when he joined Encana in 2013 points to the Newfield deal as “an acquisition from strength.”
Encana had been on hunt Robert Morris, a Citi Research analyst, said his firm was aware that Encana was on the hunt for another core North American oil play, but wasn’t expecting what occurred, although he suggested Encana’s experience in Alberta and Texas would “drive better performance and more efficient development” of the Anadarko play.
Suttles said Encana will continue to further narrow its focus to three core areas - Montney in Western Canada, Permian and Anadarko - after it closes the Newfield takeover, while the Eagle Ford (in Texas), Duvernay (in Western Canada) and North Dakota Williston formation would be used to “support value by generating significant free operating cash flow.”
Not everyone shares Morgan’s bleak assessment, with Rowland doubting Encana will engage in a wholesale relocation of its headquarters, even though it will double its U.S. payroll to about 2,200, leaving about 1,100 employees in Canada.
“I’m not sure what they would gain versus what they would lose by burning that bridge,” she said.
High-tech drilling technology Suttles said Encana will be able to employ the same high-tech drilling technology on Newfield properties that it has successfully used in its other operations.
“If you go back to our strategy work in 2013, we identified (Anadarko) ... as a premium basin. We think it’s ready to take off,” he said.
Although he relocated to Denver earlier this year, Suttles did not get drawn into debate over Morgan’s claim of a drain on Canada’s oil patch presence.
He described the imminent transformation of Encana as a “headquarterless model ... we’ll have three locations: Calgary, Denver and Houston. Actually, the work will happen where the people area, as opposed to the opposite.”
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