Encana Corp.’s temporary chief executive officer will not roll out a new strategy for the struggling company, leaving investors wondering how the natural gas producer plans to pull itself out of its long slump.
Clayton Woitas, an Encana director, took over Friday as interim CEO after Randy Eresman suddenly announced his retirement from the top spot and board. Mr. Woitas – and his successor – inherit a handful of significant problems. Shareholders are unhappy with what they see as a lack of focus, the company is being investigated in the United States on collusion allegations, and it faces tough commodity prices. Encana has been trying to shift away from natural gas, but the battered commodity still contributes the majority of its operating cash flow.
Mr. Eresman’s role in the company’s transition will be short – he is staying on as an adviser until Feb. 28. Investors hoping for clarity will have to wait.
“It wouldn’t happen at all until a non-interim CEO is put in place,” Jay Averill, an Encana spokesman, said Sunday.
The new leader will have to decide whether Encana should continue to shift its focus toward oil and natural gas liquids such as butane even though this means spending millions on commodities that make up only a sliver of the company’s business. On the flip side, natural gas prices remain in the gutter and the company argues it has collected property rich in more valuable resources and found partners to help it develop these lands – all reasons supporting Mr. Eresman’s most recent strategy.
Investors who have punished Encana for unexpected announcements in the past may be willing to cut the company some slack on Mr. Eresman’s instant retirement.
“We expect investors to be caught off-balance by this surprise announcement after a successful” joint venture deal in the company’s Duvernay play and the sale of its stake in the proposed Kitimat liquefied natural gas export terminal on Canada’s west coast, Peter Ogden, an analyst at Bank of America Merrill Lynch, said in a note Sunday. “A new CEO will introduce some uncertainty going forward in our view but we don’t expect a big market response either way on Monday.”
Encana has started its executive search, but has not set a deadline.
Natural gas is still Encana’s main game despite its attempts to shrink investment in the lagging commodity. The company’s operating cash flow in its Canadian division the third quarter of 2012 totalled $456-million (U.S). Of this, $341-million came from natural gas and $110-million from oil and natural gas liquids. The remaining $5-million in operating cash flow was classified as “other” in the company’s financial statements. In the United States, operating cash flow reached $538-million, with natural gas representing $465-million and oil and natural gas liquids making up $72-million of the total. The “other” category reached $1-million.
Mr. Eresman, who spent his entire career at Encana and its predecessor companies, is responsible for three key changes at the energy company: He spun off its oil and refining division in late 2009, creating Cenovus Energy Inc.; vowed in 2010 to double conventional natural gas production in five years; and backtracked on that plan a year later when natural gas prices plummeted thanks to a supply glut, instead shifting resources toward oil and so-called natural gas liquids.
The Cenovus split was cheered at the time because it made it easier for investors to value both companies. Cenovus has since become an oil sands darling, while investors, with the benefit of hindsight, question whether it was wise to end Encana’s diversification. Mr. Eresman’s decision to push ahead with natural gas was coolly received, and now that the company is scrambling to bolster its business in commodities other than natural gas, Mr. Eresman’s detractors argued he lacked focus. Mr. Eresman, who took over as CEO in 2006, responded by saying the company responded to market conditions.