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Encana

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Encana Corporation
IndustryPetroleum
PredecessorPanCanadian Petroleum
Alberta Energy Company
Founded5 April 2002 (2002-04-05)
Defunct24 January 2020 (2020-01-24)
FateRestructured
SuccessorOvintiv
HeadquartersThe Bow,

Encana Corporation was a Canadian independent petroleum company that existed from 2002 to 2020. The company, stylised as EnCana until 2010, was created by David P. O'Brien of PanCanadian Petroleum and Gwyn Morgan of the Alberta Energy Company through the merger of their companies. At the time of its creation Encana was the world's largest independent petroleum company by measure of its value, production, and reserves. Morgan ran the company from its inception through the end of 2005. During its early years, Encana established its reputation as Canada's flagship energy company and an icon of Western Canadian business. In September 2005 it became Canada's largest corporation by market capitalisation for a brief time.

At the beginning of 2006, Morgan ceded the presidency to Randall K. Eresman. During the new president's first year, the company's profits were CAD 6.4 billion, which was the largest corporate profit in Canadian history. In 2009 Encana spun off its oil producing operations as Cenovus, thus becoming exclusively a natural gas producer. Eresman resigned abruptly in early 2013 and was replaced by the American Douglas J. Suttles. The new president streamlined the company's operations and shifted its focus to the United States. Suttles also oversaw the company's return to crude oil production via shale plays in the US.

In October 2019, Suttles, who had moved from Calgary to Denver in 2018, announced the company would undergo a corporate restructuring that would see its residency moved to the United States and its name changed to Ovintiv. On 14 January 2020 shareholders voted 90 per cent in favor of the move, and on 24 January the restructuring was completed.

Predecessor companies

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PanCanadian Petroleum

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PanCanadian Petroleum was founded in 1971 through the merger of Canadian Pacific Oil and Gas and Central-Del Rio Oils. CPOG had been founded in 1958 by the Canadian Pacific Railway as a vehicle to produce petroleum on the land grants it had received in the nineteenth century. Central-Del Rio was a small independent producer run by oilman Neil McQueen, and the CPOG had acquired gradually a majority holding in the company. After the creation of PanCanadian, Canadian Pacific Limited remained the company's majority shareholder with approximately an 87 per cent stake. PanCanadian's freehold leases, which it inherited from the railway, gave it the largest reserves of any Canadian petroleum company.

Alberta Energy Company

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The Alberta Energy Company was created in 1973 by the provincial government under premier Peter Lougheed as a mechanism for Albertans to invest in the Syncrude project. Initially, the company was half owned by the government and half owned by the public. The AEC also produced gas in the Suffield Block and in Primrose Lake. The government began in 1983 to reduce its equity in the company, and in April 1993 it sold off its remaining 36 per cent stake. In 1994, Gwyn Morgan assumed the presidency and led the company for the duration of its existence. As a fully public company, the AEC grew substantially in the 1990s and became Canada's largest producer of natural gas.

History of Encana

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Creation of the company

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In April 2002, Pan Canadian Petroleum Ltd was spun out of Canadian Pacific Limited. It subsequently merged with Alberta Energy Corporation to form EnCana. Gwyn Morgan was named president and CEO.

Morgan era, 2002–2005

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On Wednesday, 14 September 2005, EnCana surpassed the Royal Bank of Canada to become Canada's largest corporation by market capitalisation, with a value of $51.841 billion.[1]

At a press conference on 25 October 2005, Morgan announced that he would retire from the presidency at the end of the year and that his replacement would be chief operating officer Randall K. Eresman. After his retirement, he would remain on the board. Eresman, a native of Medicine Hat, had begun working for the Alberta Energy Company as a summer student in 1978 and had joined it as an employee in 1980 while studying engineering at the University of Wyoming. When EnCana was created in 2002, Eresman was made president of its Onshore North America division, and in 2003 was made executive vice-president and chief operating officer. Morgan declared his trust in Eresman to lead the company, saying, "you don't put your life and your passion behind something unless you know that you have the right kind of person to carry it on."[2]

Eresman era, 2006–2013

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In 2009, EnCana completed the corporate spin-off of Cenovus Energy, which held its oil business, representing one-third of its total production and reserves, and EnCana Corporation retaining the natural gas business.[3][4] Investors favoured the split as it gave them the flexibility to choose between investing in oil, gas, or both.[5]

The Bow, Encana's former headquarters in Calgary, opened officially on 4 June 2013

In December 2012, Encana announced a US$2.1 billion joint venture with state-owned, Beijing-based PetroChina through which PetroChina received a 49.9% stake in Encana's Duvernay Formation acreage in Alberta. This was in line with the rules that "favor minority stakes over takeovers" since Prime Minister Stephen Harper's December 7, 2012 prohibition of purchases by state-owned enterprises seeking to invest in Canadian oil.[6][7] By the end of 2012, Encana's staff had increased to 4,169 employees.[8]

Encana and Cenovus' headquarters, The Bow in Calgary, was completed in 2013, becoming the tallest building in Canada outside of Toronto.[9] The project, owned by H&R REIT, was announced as Encana's headquarters in 2006, prior to the Cenovus split.[10]

After the markets closed on Friday, 11 January 2013, Encana announced that Eresman had tendered his resignation that morning. Although he left the presidency, Eresman remained on the board until the end of February. Upon Eresman's resignation, company director Clayton H. Woitas was made interim president and put in charge of the search for a replacement. Eresman's departure from the company was cloaked in secrecy. After the weekend, Woitas told the media that "Randy was getting fatigued." Asked if the board tried to persuade Eresman to stay, Woitas responded that "it was time to move on with a fresh face representing Encana."[11] In an article in the Calgary Herald, two anonymous analysts thought it likely that Eresman had been asked to resign.[12]

Suttles era, 2013–2020

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In November 2013, the company cut its dividend, announced layoffs of 20% of its employees, closure of its office in Plano, Texas, and plans to sell assets and to found a separate company for its mineral rights and royalty interests across southern Alberta.[8] It planned to invest 75% of its 2014 capital budget into 5 projects: Projects in the Montney Formation and the Duvernay Formation in Alberta, the San Juan Basin in New Mexico, Louisiana's Tuscaloosa Marine Shale, and the Denver-Julesburg Basin (DJ Basin) in northeast Colorado, Wyoming, and Nebraska.[8][13]

On Thursday, 15 March 2018, Suttles announced to the company's staff that he would be relocating to Denver. He stated the move was for personal reasons. When asked by journalists whether the president's move was an indication the company also would move to the United States, spokesman Simon Scott said "the answer to that is, absolutely not."[14] In November 2018, Encana completed a US$5.5 billion deal to acquire Newfield Exploration of Houston. Before the acquisition, around 60 percent of Encana's production was in Canada; after the acquisition its production became around 60 per cent American.[15] Gwyn Morgan provided a written statement about the deal that read, "I'm deeply saddened that, as a result of the disastrous policies of the Trudeau government, what was once the largest Canadian-headquartered energy producer now sees both its CEO and the core of its asset base located in the U.S."[16] In an editorial he wrote a two weeks later, he said that after stepping down as president in 2005, he "could never have imagined that, a dozen years later, the company would decide to export itself."[17] Meanwhile Ted Morton assessed the purchase, saying, "Encana's announcement that it was acquiring Texas-based Newfield Exploration may be good news for the Calgary-based company, but it is not good news for Canada. It is the most recent chapter in an unfolding story of capital flight from the Canadian energy sector."[18]

Restructuring as Ovintiv

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In October 2019, the company announced plans to move its operations from Canada to Denver, where its CEO lived, and change its name to Ovintiv.[19][20] To complete the restructuring, a new Canadian corporation called Ovintiv (corporation number 1185826-2) was created on 22 January 2020, which acquired all issued shares of Encana in a one-for-one stock swap for Ovintiv shares. On 24 January, Ovintiv was imported to Delaware under the Delaware General Corporation Law, thus concluding the move.[21]

Assessments of Encana's demise

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When the restructuring was announced in October 2019, the Financial Times solicited several reactions to the move. Tim Pickering, an asset manager in Calgary, stated that the announcement "highlights what we’ve known all along, that outside foreign investment is losing interest in the Canadian energy sector." Meanwhile, Martin Pelletier, a portfolio manager in Calgary, said that "risk is a critical factor when making capital-allocation decisions, and currently Canada is viewed as a high-risk region."[22] In another article, Canadian Business quoted Jennifer Rowland, an analyst with Edward Jones, who said "I am not surprised at all by the move. Post the Newfield deal, 60 per cent of Encana’s production is in the U.S. and two of its key growth drivers are in the U.S. Plus CEO Suttles doesn’t live in Canada; he lives in Denver."[23]

A month after the announcement, Jeffrey Jones of the Globe and Mail questioned the claim that the company's troubles were caused solely by the federal government, and suggested that, rather, the company had been managed poorly since Suttles became president in 2013. During his tenure, Encana's share price had dropped 75 per cent, while share prices in Canadian Natural Resources had increased 10 percent and in Suncor 24 per cent. He wrote of Suttles, "almost all of his major decisions have made the company more American; unfortunately for investors, none have made them wealthier."[24]

In April 2021, a year after Encana restructured, the Globe and Mail published a lengthy investigation entitled "Who killed Encana?" In the piece, the authors interviewed the company's founders, Morgan and O'Brien, who disagreed with one another on the causes of the company's demise. Morgan laid the blame on the Liberal federal government, which he believed had created a climate hostile to energy investment. He also stated that if Encana had not spun off its oil business into Cenovus, the company "would still be in Canada." O'Brien, on the other hand, said "I don't think the government had anything to do with what happened to Encana, frankly." Rather, he believed the company's difficulties, and its migration to the United States, were the product of the U.S. shale revolution that began around 2008. On the question of the Cenovus split, he said both companies were hit by the revision in prices after 2008, and that "Cenovus has been terrible. Encana has been terrible."[25]

In the years after the company's restructuring, Suttles's compensation came under scrutiny vis-à-vis Encana's performance during his tenure as president. In January 2021, Kimmeridge Energy Management, a private equity firm that owned 2.4 per cent of Ovintiv, released a report on the company's poor performance. During Suttles's tenure, Encana's shareholder returns had been negative 85 per cent, while his compensation had risen from US$6.7 million in 2014 to US$12.6 million in 2019.[26] Through his eight years as head of Encana, the company's shares decreased 58 per cent in value, while he was paid a total of US$104-million. David Milstead said, "it may not be the most colossal mismatch between executive compensation and company performance in Canadian history, but it's a contender."[27] The Financial Post reported that, despite the decline in shareholder equity from US$5.29 billion to $3.84 billion during his presidency, "Suttles was consistently among the highest paid executives in the Canadian oil patch."[28]

Leadership

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President

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Gwyn Morgan, 5 April 2002 – 31 December 2005
Randall K. Eresman, 1 January 2006 – 11 January 2013
Clayton H. Woitas (interim), 11 January 2013 – 11 June 2013
Douglas J. Suttles, 11 June 2013 – 10 September 2019
Michael G. McAllister, 10 September 2019 – 24 January 2020

Chairman of the Board

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David P. O'Brien, 5 April 2002 – 24 July 2013
Clayton H. Woitas, 24 July 2013– 24 January 2020

References

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  1. ^ "EnCana is No. 1 in Canada," Calgary Herald (15 September 2005), D1.
  2. ^ Dave Ebner, "EnCana CEO resigns," Globe and Mail (25 October 2005).
  3. ^ Haggett, Scott (November 30, 2009). "EnCana wraps up spinoff of its oil business". Reuters.
  4. ^ "EnCana proceeds with plan to split into two distinct and independent energy companies" (PDF) (Press release). Cenovus Energy. September 10, 2009. Archived from the original (PDF) on January 19, 2022. Retrieved July 5, 2023.
  5. ^ Parkinson, David (December 9, 2009). "Cenovus spinoff gives investors a choice".
  6. ^ Jones, Jeffrey (December 13, 2012). "Encana, PetroChina take $2.2 billion stab at joint venture". Reuters.
  7. ^ "Encana, PetroChina form joint venture to develop natural gas in Alberta". Financial Post. December 13, 2012.
  8. ^ a b c "Encana laying off 20% of workers". CBC News. November 5, 2013.
  9. ^ "The Bow tower officially opens in Calgary". CBC News. June 4, 2013.
  10. ^ Parkinson, David (February 9, 2007). "H&R REIT to develop EnCana's new headquarters". Globe and Mail.
  11. ^ Carrie Tait, "Interim Encana CEO says Randy Eresman was tired, so he retired," Globe and Mail (15 January 2013).
  12. ^ Dan Healing, "Eresman exits Encana," Calgary Herald (12 January 2013), C1.
  13. ^ Dawson, Chester; McKinnon, Judy (November 5, 2013). "Encana to Cut Dividend, Jobs in Reorganization". The Wall Street Journal.
  14. ^ Jeffrey Jones, "Encana CEO decamps for Denver, Calgary headquarters remains," Globe and Mail (17 March 2018), B2.
  15. ^ Olivia Pulsinelli and Greg Avery, "Encana to buy Texas company in multibillion-dollar deal," Denver Business Journal (7 November 2018).
  16. ^ Kevin Orland, "Encana founder blames Trudeau," Toronto Star (6 November 2018), B3.
  17. ^ Gwyn Morgan, "The tragic Americanization of Encana," Financial Post (21 November 2018), FP9.
  18. ^ Ted Morton, "Another Canadian oil company flees Trudeau and Notley for the U.S." Whitecourt Star (28 November 2018), A12.
  19. ^ "Encana to Establish Corporate Domicile in the U.S." PR Newswire. October 31, 2019.
  20. ^ "Encana reveals Denver will be its new headquarters after leaving Calgary". CBC News. November 7, 2019.
  21. ^ Ovintiv, 2019 Annual Report, 8.
  22. ^ Jason Kirby, "Canadian oil producer Encana decamps for the US," Financial Times, (31 October 2019).
  23. ^ "Encana moving HQ from Calgary to the U.S., changing name to Ovintiv," Canadian Business, (31 October 2019).
  24. ^ Jeffrey Jones, "Encana's mess is of its own making," Globe and Mail (1 November 2019), B1.
  25. ^ Tim Kiladze and Jeffrey Jones, "Who killed Encana? Inside the mess that crushed Canada's energy icon," Globe and Mail (23 April 2021).
  26. ^ Scott Deveau, "Ovintiv, formerly Encana, faces Kimmeridge's proxy fight threat," Calgary Herald (15 January 2021), B3.
  27. ^ David Milstead, "The tale of Encana's $100-million man," Globe and Mail (6 April 2022), B10.
  28. ^ Geoffrey Morgan, "High-flying Encana got makeover under retiring CEO Doug Suttles; New name, new focus, new location," Financial Post (17 June 2021), FP6.