Encana Corp.’s new chief is looking for “radical change” in the way the company spends money, a quest to leave behind a scattershot strategy and a shift that could include selling assets and forgoing production growth.
Doug Suttles, who took over as the natural gas company’s CEO in June, also broke from Encana’s traditional stance, saying its dividend is under review.
Natural gas firms like Encana and Talisman Energy Inc. spent years securing vast swaths of land in North America but are now struggling to transform the hydrocarbons trapped beneath the surface into profit. Companies across the board have suffered from languishing prices, but Encana’s problems are compounded by a confused strategy. Talisman suffered a similar problem, and now Encana is mirroring its approach to tidying up its focus in the hope of lifting its dampened stock price.
“Our capital allocation process is broken. We’re funding way too many plays, we’re not prioritizing, we’re not focusing our efforts,” Mr. Suttles said at a conference. “We have something like 28 or so different asset opportunities in the portfolio, and every single one of them are being funded right now.
“Focus and discipline and capital allocation is a real key to performance, and it is one of the things we have to make radical change in if we’re to be successful,” Mr. Suttles added.
This is the first time the former BP PLC executive provided a glimpse of his evolving plans. He noted Encana is loaded with dry natural gas, a product now worth less than its by-products like propane, and asset sales may be on the way.
“We have too many assets,” Mr. Suttles said. “We’ll have to clean that part of the portfolio up.”
George Gosbee, chairman and CEO of AltaCorp. Capital Inc., said it has been a difficult market for oil and gas asset divestitures this year, but Encana could be heading into an improving market.
“It’s a difficult time right now as the buyer and seller, on pricing, are so far apart. So we’ve got to narrow that spread a little bit. I do think the capital markets are coming back to support,” he said.
“If we can get some transaction clearing at prices that are pretty favourable and the sellers can be realistic, then I think we can start seeing movement in the property market again here for the fall.”
Encana believes there is between $60-billion and $90-billion of “uninvested funds” chasing after oil and gas properties.
The Calgary-based company, Mr. Suttles said, does not have to increase the volume of natural gas and its by-products in order to jack up its fortunes.
“The first priority has to be profitability,” Mr. Suttles said. “You can grow profitability without growing production.”
This strategy is similar to Hal Kvisle’s approach at Talisman. Mr. Kvisle took over from John Manzoni last September and immediately rolled out plans to steer away from growth if it came at the expense of the bottom line.
Analysts warmed to Mr. Suttles remarks, but some cautioned investors to save their enthusiasm for later.
“It is a lot of generalities and saying what you would expect to be said: Focus on returns and profitable growth,” said Phil Skolnick, an analyst at Canaccord Genuity Inc. “We need to know about the execution and that’s yet to be announced.”
Encana’s new CEO, who took over months after Randy Eresman abruptly left the top spot, said the company’s dividend – long sacred – is under consideration as he continues to rewrite strategy.
Greg Pardy, an analyst at RBC Dominion Securities Inc., in a note said a dividend cut is “important” and “warranted.” He has factored in a 50-per-cent cut, to 40 cents a share per year, down from 80 cents a share.
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