Skip to main content
The Globe and Mail
Get full access to globeandmail.com
Support quality journalism
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
The Globe and Mail
Support quality journalism
Get full access to globeandmail.com
Globe and Mail website displayed on various devices
Just$1.99
per week
for the first 24 weeks

var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){console.log("scroll");var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))}pencilInit(".js-sub-pencil",!1);

In January, the company made its transformation official – moving the corporate headquarters to Denver from Calgary, the latter seen here on Oct. 31, 2019.

Jeff McIntosh/The Canadian Press

When Encana Corp. announced a plan to move to the United States and rename itself Ovintiv, it knew many Canadian money managers would sell its stock. The long-term goal was to attract big U.S. investors instead.

New regulatory filings show, however, that multiple U.S. institutional investors also sold off huge positions in Encana stock in 2019’s fourth quarter, even before the move to the United States became effective.

It was the culmination of a year in which institutional investors soured on the company for its poor performance. The heavy selling pressure over the past several months, from both sides of the border, helps explain how Ovintiv shares hit a 52-week low on Tuesday – which was also the lowest closing price since the creation of Encana in a 2002 merger.

Story continues below advertisement

Records filed with the U.S. Securities and Exchange Commission and compiled by S&P Global Market Intelligence show a dozen institutional investors sold off at least one million Encana shares in the fourth quarter. Only four of the 12 were Canadian. Two firms – Whitebox Advisors LLC of Minneapolis and Guardian Capital LP of Toronto – sold off their entire stakes of roughly 1.5 million shares each. (Both firms declined to comment.) Three of the other sellers of at least one million shares – just one of which is Canadian – disposed of at least 90 per cent of their holdings during fourth-quarter sales.

To be sure, some U.S. institutions have been buyers. While many firms were exiting, one made a huge bet: San Francisco-based Dodge & Cox began buying Encana in the third quarter and owned 28.5 million shares at Dec. 31, nearly 11 per cent of the company. The money manager cited Encana as a pick for its International Stock Fund, saying its “combination of low valuation and reasonable growth potential is scarce in today’s market.”

Ovintiv spokeswoman Cindy Hassler noted Dodge & Cox and Causeway Capital Management LLC, the company’s largest stockholder, together now own about 25 per cent of Ovintiv. “We feel very good about our list of top investors,” she said.

Encana said one of the primary reasons for the decampment to the United States was the desire to attract investment by large U.S. funds that track U.S. stock indexes.

In January, the company made its transformation official – moving the corporate headquarters to Denver from Calgary, incorporating in Delaware and renaming itself Ovintiv Inc. It also did a reverse one-for-five stock split (which is reflected in all share counts in this story). More than 90 per cent of shareholders voted in favour of the moves.

The short-term price to be paid, Ovintiv understood, was expulsion from the S&P/TSX Composite and other indexes based on the Canadian stock market – and the sale of millions of shares by funds that track those indexes. Indeed, on Jan. 23, more than 19 million shares of Ovintiv changed hands on the Toronto Stock Exchange, more than 10 times the normal daily volume. Ovintiv shares lost roughly one-third of their value in January selling.

That awful January was on the heels of a 2019 that saw Encana’s average share price fall every quarter. The S&P Global Market Intelligence data show institutions actually piled into the shares in the first quarter of last year, with a nearly four-to-one ratio of buying versus selling. Encana had completed the acquisition of U.S. oil company Newfield Exploration Co., a move several analysts questioned, and some investors saw the beaten-down shares as a value play.

Story continues below advertisement

It turned out to be a value trap instead, as the shares fell from an average of $45 in the first quarter to an average of around $30 in the third quarter, and about $28 in the fourth quarter, as the institutions sold.

“Investor frustration today is worse than in the immediate aftermath of the Newfield transaction and management is facing an uphill battle in regaining the faith of the investment community," said analyst Chris Cox of Raymond James.

Ovintiv released its earnings report on Wednesday, saying it had beaten earnings expectations and was on track to generate cash flow above its spending needs. The results helped stoke a brief bit of enthusiasm: The shares gained 5.4 per cent on Wednesday, but were down 0.7 per cent for the week, closing Friday at $20.89.

The near-term problem, however, is that Ovintiv has yet to be added to any meaningful U.S. indexes. At a market capitalization of about US$4.25-billion, it’s too small for the mainstay S&P 500, which requires US$8.2-billion of market value or more. It’s a better fit, by size, for the S&P MidCap 400. But that index has much less investor money following it, and it won’t see changes to its membership until a March rebalancing.

“From a funds flow perspective, they need to get into the S&P 400 for the potential passive buying from U.S. investors to offset the loss from Canadian index funds," Mr. Cox said. "Given the share price move we have seen, that seems like a challenge at this juncture, which obviously adds to the woes.”

Letko, Brosseau & Associates Inc., a Montreal-based investment management firm, had argued that the move put Canadian shareholders at a disadvantage, saying its internal estimates showed the potential loss of Canadian investment would have a bigger negative impact on the stock price than the increase in the U.S. holdings.

Lekto Brosseau was the company’s fourth-largest shareholder on Dec. 31, with just under 10.2 million shares, nearly 4 per cent of the company. It bought 3.2 million shares in the third quarter, then sold 322,365 shares in the fourth quarter. Peter Letko, the company’s senior vice-president, said his critical view of the transformation has not changed, but “what is done is done.”

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies