Financial Post – Canada: Takeover talk boosts EnCana shares: “Royal Dutch/Shell rumoured suitor: Shares of EnCana Corp., Canada's second-largest company and North America's top natural gas producer, jumped nearly 10% late yesterday on speculation of a takeover bid by oil major Royal Dutch/Shell Group.”: “Shell is a big operator in Canada. It owns 78% of Shell Canada Ltd”: Thursday Oct 20, 2005
CALGARY - Shares of EnCana Corp., Canada's second-largest company and North America's top natural gas producer, jumped nearly 10% late yesterday on speculation of a takeover bid by oil major Royal Dutch/Shell Group.
The speculation has repeatedly swirled around the company, which has reorganized itself in the past year, selling off international and conventional assets to become focused on natural gas resource plays in North America and the oilsands in Northern Alberta.
One industry source said yesterday's speculation was fanned by American institutional investors who believe EnCana would be a good fit for the Anglo/Dutch giant, which is on the hunt for new reserves after repeatedly downgrading those in its books.
But in an interview with the Financial Post last month, EnCana CEO Gwyn Morgan downplayed chances of a takeover when asked about the rumours. "I wouldn't react specifically to that [speculation about a Shell bid]," he said. "But I've always said to my people, 'Never play defence, always play offence, just keep on building, achieving. That's your best way of retaining your independence.' "
"Clearly, my team and I, my board and I, my chairman [David O'Brien] and I, haven't come this far and put in this kind of effort to go softly into the night and become a branch office."
EnCana's stock finished the day at $61.65, up 9.78% higher, in Toronto yesterday, with nearly eight million shares traded, or more than twice the average volume. It was the biggest gain in three years.
Industry sources have repeatedly dismissed the speculation because EnCana would be too big a bite for Shell, a global energy giant which is five times EnCana's size and has just completed a reorganization of its own.
EnCana has a market cap of nearly $53-billion, and Shell would have to pay a hefty premium to capture the company, which has been jockeying with Royal Bank as Canada's biggest by market capitalization.
A Shell takeover could also be politically unpopular, given that EnCana holds 5.9 million net acres of so called fee-simple lands inherited from the Canadian Pacific Railway -- nearly four times as big as Prince Edward Island -- on which it doesn't pay royalties to governments.
EnCana, which is also the largest petroleum rights owner in Canada, was formed three years ago from the merger of Alberta Energy Co. and PanCanadian Energy Corp., a unit of the CP Ltd. conglomerate, to create a Canadian powerhouse able to defend itself against foreign takeovers. At the time, many of Canada's oil and gas companies were swallowed by American rivals, leveraging a weak Canadian dollar.
But Wilf Gobert, vice-chairman at Peters & Co., said EnCana may not have a choice if the price is high enough.
"EnCana doesn't necessarily want it, but this is a public company and the board is a trustee of the public's money," he said. "If the price is high enough they can't say no. They could be found liable by shareholders for standing in the way of shareholder value realization."
For its part, Mr. Gobert said Royal Dutch needs to book reserves and is keen to play a bigger role in North America's natural gas business.
Chris Theal, an analyst at Calgary investment bank Tristone Capital, said he does not think EnCana would be a reluctant seller.
"So long as the price recognizes its unbooked reserves and its resource potential. I would think a US$70 a share price would go a long way," Mr. Theal said.
EnCana spokesman Alan Boras said yesterday the company would not comment on the rumours.
Shell is a big operator in Canada. It owns 78% of Shell Canada Ltd., which has one of the largest oilsands mining operations, a stake in the Sable gas project offshore Nova Scotia, and is a partner in the proposed $7-billion Mackenzie Valley natural gas pipeline project.
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