Encana plans to save capital with hold on joint ventures

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Encana Corp.'s new chief executive is rethinking the company's strategy of using joint ventures to develop its North American assets as he plots a new way forward for the country's biggest natural gas producer.

Doug Suttles, the former BP PLC executive who is in his seventh week leading the one-time market star, has promised to roll out a new strategic plan by the end of the year. In the meantime, Encana has suspended its search for new partners, despite interest among various companies in doing deals, he said.

Under former CEO Randy Eresman, the company sought out billions of dollars' worth of joint ventures that would bring in immediate cash through the sale of interests in prospects and defray large chunks of the development expenses. The last major deal of that type was the $2.2-billion sale of a 49.9-per-cent interest in the company's Duvernay liquids-rich shale play in Alberta to PetroChina, announced in December.

But Mr. Suttles said he does not want to lock into similar transactions right now. "Those commitments do restrict your flexibility because they consume a lot of your capital. Before we decide to make any more, I want to make sure we're very clear where we want to take the company," he said in an interview.

"It may be that additional joint ventures play a part of that or they might not, but before I found myself making some decisions which in some ways start to lock in strategy, I just wanted a pause on that activity."

Encana is seeking to restore its industry-leading position and boost its stock in the face of weak natural gas prices, and Mr. Suttles was hired in June to hammer down a new vision to allow that to happen. The new design will go into effect in 2014, Mr. Suttles said on Wednesday, as Encana reported higher-than-expected second-quarter profit, due partly to a 69-per-cent jump in production of natural gas liquids and oil, which have been more richly priced than natural gas.

Despite the jump in profit, the stock fell 35 cents to $17.78 on the Toronto Stock Exchange, which is down 14 per cent in the past year.

The new CEO has appointed a team composed of specialists from numerous disciplines that is combing through Encana's extensive oil and gas holdings and operating methods to determine how each stacks up against competitors.

Mr. Suttles stressed that Encana will live up to its commitments with current venture partners.

One drawback of such arrangements, which are well established in the energy business, is the loss of control over the pace of development. Some analysts have also complained that companies become more difficult to evaluate as stakes in assets get traded, and the terms of how projects are funded vary.

"It seemed great at the time because they were raising money and they were short, but you're selling off assets that you must really like. You say that you're speeding up the development, but there's going to be a point where you may need bunches of capital to meet the partner's requirements, and that'll be an interesting discussion, " AltaCorp Capital Inc. analyst Dirk Lever said.

Mr. Suttles is also reviewing the overall number of operations Encana has, and the minimum size of that makes sense for various resource plays.

"Some of those efficiencies are lost when you throttle back or pull back on those programs, so one of these things that we'll be looking at in the strategy is: Do we have more positions than we can run efficiently or not? And I actually don't know the answer yet," he said. "But it's good that we have choice."

In the second quarter, Encana's net income was $730-million (U.S.), compared with a year-earlier loss of $1.48-billion. Operating earnings were $247-million, or 34 cents a share, up 25 per cent cent from $198-million, or 27 cents a share. Analysts' average estimate was for 19 cents a share in operating earnings.

Also on Wednesday, Encana said David O'Brien was stepping down as board chairman after 10 years and was being replaced by Clayton Woitas. Mr. O'Brien will remain a director.