Canadian oil producer Encana decamps for the US
Canadian oil and gas producer Encana plans to shift its base from Calgary, Alberta to the US and rebrand as Ovintiv, a move that analysts said signals that Canada’s energy sector is no longer a welcoming place for international business.
Doug Suttles, EnCana’s president and chief executive, on Thursday said the move will give the company greater access to foreign capital.
“A domicile in the United States will expose our company to increasingly larger pools of investment in US index funds and passively managed accounts, as well as better align us with our US peers,” he said.
The company said none of its head office operations are moving to the US and the changes will not result in any job losses in Canada.
Tim Pickering, lead portfolio manager at Auspice Capital in Calgary, said EnCana’s decision is “a big negative” for the Canadian industry, which has been struggling with pipeline capacity shortages. “It highlights what we’ve known all along, that outside foreign investment is losing interest in the Canadian energy sector.”
He also questioned how secure jobs at EnCana’s Canadian operations are, given the company’s shift towards the US.
Under Mr Suttles, Encana has steadily transitioned the company’s operations away from Canada to the US. Earlier this year Encana closed its $5.5bn acquisition of Houston-based Newfield Exploration.
Along with moving its base to the US, Encana said it will consolidate its shares, with shareholders receiving one share of Ovintiv for every five Encana shares.
Mr Pickering said the name change to remove any reference to Canada — Encana was a combination of Energy Canada — is also “painful to see, but it’s a reality”.
Earlier this year Calgary-based pipeline firm TransCanada renamed itself TC Energy to reflect its expanding operations beyond Canada.
Encana’s decision comes amid an exodus of international companies from Canada’s oil patch. Over the past three years foreign companies have divested more than $30bn from Canada’s energy sector, according to Martin Pelletier, a portfolio manager at TriVest Wealth.
In August, Kansas-based conglomerate Koch Industries dumped its oil sands licenses. Months earlier Oklahoma-based Devon Energy sold its oil-sands businesses, while ConocoPhillips and Royal Dutch Shell have also exited Canada.
“Risk is a critical factor when making capital-allocation decisions, and currently Canada is viewed as a high-risk region,” Mr Pelletier said, pointing to legislation introduced by Justin Trudeau’s Liberal government last year to overhaul the environmental assessment process for large infrastructure projects and impose a ban on oil tanker traffic along British Columbia’s north-west coast.
A shortage of pipeline capacity has also forced producers to accept lower prices. Benchmark crude in western Canada sells for about $35 a barrel, a nearly $20 discount to US West Texas Intermediate.
“We don’t think it’s a coincidence that Encana decided to pull the plug immediately following the election, and unfortunately we expect to see more of this happen in the months to come,” he said.
On October 21 Mr Trudeau’s Liberals won the most seats in federal elections, but failed to secure a majority. Parties that favour higher prices on carbon and further restrictions on resource development could hold a balance of power once parliament resumes.
After the election Mr Trudeau said his government is still committed to building the Trans Mountain pipeline expansion. While construction on the project is under way, it faces several potential court challenges.
Additional reporting by Gregory Meyer in New York