In 2002, when PanCanadian Petroleum and Alberta Energy Co. merged to create Encana, it was a win for the domestic oil and natural-gas business. At the time, several big Canadian energy companies had disappeared, bought out by American competitors. Encana – a portmanteau of “energy” and “Canada” – represented greater ambition than selling to the highest bidder.
It was an apt union. The roots of PanCanadian stretched back to the 19th century, and to land given by the federal government to its former parent, the Canadian Pacific Railway. AEC was established in 1973 by Alberta premier Peter Lougheed. It, too, was handed public land – including what turned out to be prime positions in the oil sands.
In the mid-2000s oil and gas boom, Encana thrived, becoming the country’s most valuable and profitable company. But Encana’s ambition soon morphed into short-term thinking.
It first tried to turn itself into a tax-avoiding income trust – remember those? – before the Harper government clamped down. Then, in spring, 2008, at the height of the oil and gas bubble, Encana decided its best move was to split itself into an oil sands company and a natural-gas producer. The oil business became Cenovus. The gas side retained the Encana name.
It was the opposite of the ambition of 2002.
It was also typically Canadian, seeking immediate returns from the stock market rather than persevering and charting a course for a more distant horizon. Look at successful companies today. Amazon would never split off AWS, its cloud computing business. ExxonMobil would not split its gas business from its oil operations. The same goes for Canadian Natural Resources, built up from nothing by Murray Edwards over three decades.
The news last week that Encana is moving its headquarters to the United States was set in motion a decade earlier. Cenovus oil sands production has surged, even in a difficult market. Natural gas has been a much tougher business. In recent years, Encana, spun out as a pure-play gas company, has tried to rebuild the oil business it once shed.
For Alberta, the loss of a corporate headquarters hits hard. Canada knows this story well – the vanishing of names from Inco to Alcan. Encana had been shifting its focus to the U.S. but its official departure hurts.
It also didn’t have to happen.
Encana started with a lot of advantages, including a resource base given to it by government. The fact that the stock has lost roughly 90 per cent of its value since 2008, including a share price cut in half over the past year, is partly about weak global energy prices. But it’s even more the result of poor corporate decisions.
Alberta Premier Jason Kenney blames Ottawa for what has happened to Encana and believes Prime Minister Justin Trudeau is deliberately trying to harm the oil patch. That is a severe distortion of the truth.
The Trudeau government has staked billions of dollars on the Trans Mountain oil pipeline and liquefied natural-gas exports. The Premier of Alberta also seems to forget that two other major proposed pipeline expansions – Line 3 and Keystone XL – were long ago approved by Canada and are mired in a U.S. regulatory and legal web. (If all three pipelines go ahead, Western Canada will have ample oil export capacity well into the late 2030s.)
In an alternate history, where Encana executives resisted the siren call of short-term gains, the company would likely still rank among Canada’s most valuable and profitable names. It would, of course, be grappling with challenges, from commodity prices to pipeline capacity to climate change. But with large, diverse operations, Encana would be well positioned. Its headquarters wouldn’t be moving south.
Look at Encana’s old rival, Canadian Natural Resources. In a tough environment, it booked a profit of $3.8-billion in the first half of this year. Suncor’s profit in the same period was $4.2-billion. Oil production in Western Canada rose 9 per cent in 2018 and is set to rise another 1.6 per cent this year.
Blaming Encana’s failures on Ottawa is inaccurate and unfair. Its decline, and the decision to move its head office, stem from poor choices made in a Calgary boardroom a decade ago. Reasonable people can debate to what extent the Trudeau government has made policy mistakes that have hurt the oil patch. But those are a sidebar to Encana’s sad story.