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Petroleum News: EnCana on full spin cycle: "And,
in the thick of all this, rumors persist that it
remains in the crosshairs of such global giants
as Chevron and Royal Dutch Shell.": Saturday 24
December 2005
CEO Gwynn Morgan, CFO John
Watson set to leave; deal pending to sell AECO
Hub gas storage; hopes of completing Valero deal
fallen through
Gary Park
Petroleum
News Canadian Contributing Writer
Without a doubt, EnCanans live in
interesting times.
The employees of Canada’s powerhouse gas
producer must feel their heads are about to
swivel off their shoulders as they try to keep
pace with unfolding events.
Here’s the latest batch of highlights:
• Chief Executive Officer Gwyn Morgan and
Chief Financial Officer John Watson will take
their leave over the next two months from posts
that have seen them shape a company created four
years ago from the merger of Alberta Energy Co.
and PanCanadian Energy.
• EnCana is starting to roll out plans for
a new head office that could tower over rivals
in downtown Calgary.
• Hopes of completing a US$2 billion deal
with Valero Energy to convert an Ohio refinery
to process oil sands production have fallen
through.
• A deal is pending to sell North
America’s largest independent natural gas
storage network.
• If ConocoPhillips pulls off its
blockbuster takeover of Burlington Resources,
EnCana could lose its coveted role as North
America’s largest gas producer.
And, in the thick of all this, rumors
persist that it remains in the crosshairs of
such global giants as Chevron and Royal Dutch
Shell.
Both Morgan and Watson joined Alberta
Energy Co. when it was created by the Alberta
government in 1975 to develop energy resources
on military bases and, now that both have turned
60, they feel the time has come to take a
different path in their lives.
Morgan, who first started calling his
employees EnCanans — a label that causes many to
cringe — stunned the industry when he decided to
let go of the reins.
Watson’s announced departure only
heightened takeover talk, despite Morgan’s
insistence that no discussions have taken place
with suitors and he is not aware of any looming
offers.
The coincidence of the timing was nothing
more than that and should be seen only as part
of the “natural executive succession” at the
company, said EnCana spokesman Alan Boras.
New headquarters building planned
But Morgan is not going without leaving a
landmark legacy.
To consolidate EnCanans, who are scattered
through five Calgary office buildings, the
company has decided to reach for the sky.
Final plans have yet to be unveiled, but
the “signature” project is expected to cost up
to C$700 million, contain 2 million square feet
and rise above the nearby 62-story Petro-Canada
tower which dominates the city skyline.
In keeping with EnCana’s sense of
grandeur, the company has hired the English firm
of Foster and Partners as its lead architect.
The firm has been hired to work on the new
World Trade Center, having already left its mark
with the Reichstag building housing Germany’s
government in Berlin, London’s Millennium Bridge
and a London high-rise known, because of its
shape, as the Gherkin or pickle.
Foster said in a new release it is
thrilled to have the chance to “capture the
collective consciousness of Calgary.” Whether
that means “Stampede-them” no one is saying.
Search for refinery
On the more serious business front, ending a
tentative partnership with Valero was a blow to
EnCana’s oil sands strategy after the largest
U.S. refiner balked at converting its 170,000
barrel-per-day Lima refinery in Ohio to process
bitumen and heavy crudes from EnCana’s oil sands
properties.
EnCana had viewed the refinery refit as a
better economic proposition than gambling on
building its own upgrader in northern Alberta.
But Valero Chief Operating Officer Bill
Klesse said the US$2 billion cost of conversion
“just did not allow for returns that were
sufficient to compete with our other strategic
investment opportunities.”
The initial deal was made with Premcor
Refining Group, which was swallowed up earlier
this year in a US$6.9 billion takeover by
Valero.
Wilf Gobert, vice chairman of Peters &
Co., suggested Valero decided to give priority
to major capital commitments to produce low-sulfur
fuels in the United States.
Incoming EnCana Chief Executive Officer
Randy Eresman said efforts will now turn to
finding a North American refinery that might be
interested in teaming up with EnCana in exchange
for some of the bitumen production.
The company said more than 20 companies
have expressed interest in EnCana’s oil sands
initiatives, including a 10-fold increase in
production to 500,000 bpd over the next 10
years, and a short list will be developed early
in 2006.
Company also unloading gas storage assets
Also on the agenda is the conclusion of a
deal to unload non-core gas storage assets
including the AECO Hub in Alberta that holds 135
billion cubic feet of gas, the bulk of the
network’s total capacity of 174 billion cubic
feet.
Analysts already believe EnCana will fetch
well above US$1 billion, pushing its total
divestitures above US$10 billion, including a
recent US$697 million disposal of its natural
gas liquids business to Provident Energy Trust.
If the ConocoPhillips-Burlington
transaction is completed, EnCana will have a
tough job hanging on to the top spot among North
America’s gas producers.
The combined output of the two U.S.
companies is about 3.6 billion cubic feet per
day, almost 400 million cubic feet per day ahead
of EnCana’s third-quarter sales volumes this
year.
But EnCana is in full flight, developing
its resource plays down the slopes of the Rocky
Mountains in the United States and Canada, in a
field where Burlington has considerable
expertise.
Over the longer-term ConocoPhillips is
strongly placed for major growth if the North
Slope and Mackenzie Delta projects come on
stream. |
