In banking, there's too big to fail. In natural gas, there's too big to succeed.
It's a lesson Encana Corp. learned the hard way. Roughly three years ago, Randy Eresman, the energy giant's former chief executive officer, pledged to double natural gas production by 2015. Since then the company's shares have plummeted about 45 per cent.
Mr. Eresman's strategy was always a bold one, but three years ago there was case to be made for its sensibility. Natural gas prices rose coming out of the financial crisis and there seemed to be more room for them to run.
The problem is that other developers and producers piled in, and suddenly there was a supply glut that sent natural gas prices crashing to around $2 per thousand cubic feet.
For a while the pain was widespread, yet lately the market has been quirky. With natural gas prices on the rebound, back to $3.76, the smaller, more nimble players are feeling the love, while the behemoths have been shunned.
In the past year Encana's shares have dropped 10 per cent. By contrast, Tourmaline Oil Corp., a sexy new natural gas player, is up 70 per cent over the same period, Peyto Exploration and Development Corp. rose 77 per cent and Paramount Resources Ltd. has jumped 42 per cent.
It can be tricky to group all of the smaller players into one homogenous category because each has different production and exploration results. But it's very clear that investors are rewarding companies that are much easier to manage, and who can fund their own development.
Encana, by contrast, has enormous amounts of land, but can't convince investors of exactly how its properties will be developed. The company has looked for joint venture partners and struck a $2.2-billion deal with PetroChina in December, but these have been few and far between.
Talisman Energy is in the same boat. Though its stock has done a little better than Encana's, climbing 10 per cent in the past year, the company also had to replace its CEO, and the new guy, Hal Kvisle, is now talking at length about the need for asset sales.
Encana doesn't necessarily need to start a fire sale of its own, but Doug Suttles, the new company's new chief, should know that investors need confidence on the way forward, and his company's baby steps to trim costs won't be enough to earn it. In this market, you don't earn respect simply for your size.
(Tim Kiladze is a Globe and Mail Reporter.)
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