Gwyn Morgan, the founding CEO of Encana, says the company's '"centre of gravity" has been shifting for years.
It should not come as a shock that Encana Corp. is uprooting its corporate flag and moving its headquarters to the United States.
It certainly didn’t catch Gwyn Morgan off guard.
The founding CEO of the major Calgary-based petroleum producer, who retired in 2005, noted Encana’s “centre of gravity” has been shifting for years.
When the company placed more focus on U.S. growth, or when current CEO Doug Suttles began working out of the company’s offices in Denver, or Encana said it was adopting a “headquarter-less model,” or made a US$7.7-billion purchase of Texas-based Newfield Exploration a year ago, the signs all pointed in the same direction.
Southbound.
However, for a city, province and industry struggling from a prolonged downturn, the news still stings.
“It’s sort of the step that all of us hoped wouldn’t happen, especially the employees and the guy who founded the company. But it is disturbing and not surprising,” Morgan said Thursday in an interview.
“But there is a sense of loss anyway because it’s hard to come from being a proud Canadian-headquartered company, with a mission, to be sort of a branch office.”
Encana announced early Thursday it was changing its name to Ovintiv Inc., and intends to establish its corporate domicile in the United States, pending approval by stock exchanges, courts, as well as shareholders, next year.
The company said the shift should help it attract larger pools of investment. Encana pointed out its main American competitors have 20 per cent more index and passive ownership than it does being a Canadian-based firm.
Suttles insists the change won’t affect jobs or capital allocation in Canada, although it’s hard to see how this isn’t another step in a slow-motion shuffle southward.
“We don’t want people to see this as some negative reflection on Canada,” he told BNN Bloomberg television.
How else should people read it?
Yes, the company still has a big presence in the Bow building and excellent assets in the Montney and Duvernay formations.
It still has 40 per cent of its workforce, about 1,100 people, in Canada. This is nothing to sneeze at.
“Make no mistake, we have a long and proud history in Canada, and our assets here are world-class,” Suttles told analysts on a conference call. “How we operate the business and run the business will not change.”
However, the decision to change its name and shift its corporate base to the U.S. speaks volumes about where its future lies, underscoring the challenges facing the country’s energy sector as investment, equipment and people head elsewhere.
A number of other internationally-based companies have retreated from the country after oil prices tanked and the industry began a painful restructuring.
“This is a tragedy for Canada,” said Alex Pourbaix, CEO of Cenovus Energy, the Calgary-based oilsands producer that was spun out of Encana in 2009.
“There’s a more fundamental issue going on, and that is over the past five or six years, we have generally seen an exodus of investment, both by international companies and, frankly, by Canadian companies.”
While local jobs may not be lost, Morgan said it is significant when the top decision-makers aren’t in the country.
A native of Carstairs, Morgan recalls when he first started in the industry in the 1970s, there were few large Calgary-headquartered operators. Most of the key decisions were made elsewhere.
Encana was created following the blockbuster announcement in January 2002 that Alberta Energy Co. and PanCanadian Energy Corp. would merge in a $27-billion union. The company’s name even fused the words “energy” with Canada to promote its brand.
By the time Morgan retired last decade, Encana was the largest company in Canada by market capitalization, ahead of the country’s big banks.
“It was a fulfilment of what I called my lifelong ambition to create a great Canadian-headquartered company that wouldn’t go, that would never be taken over, and move to somewhere else,” he added.
“But I never expected that the company would end up, if I can put it this way, exporting itself to the U.S.”
Now, some people will say Thursday’s decision isn’t significant, the company isn’t relocating jobs, it’s still drilling and producing large volumes in the Western Canadian Sedimentary Basin, and the country remains part of its future.
Let’s hope time proves them right.
However, Morgan isn’t convinced the changes are minor, noting a head office means more than just a place to call home. It means having corporate positions centralized in the city, spending money in the local economy, remaining active in local sponsorships and charitable work, and having a sharper focus on its home turf.
“There’s just a big difference overall when the decisions are being made somewhere else about the business sector in your country,” he said.
You also don’t have to look very far to see the constant challenges the Canadian oilpatch faces.
On the same day as Encana unveiled its new name and is moving its base to the U.S., the Alberta government announced it’s modifying its oil curtailment program, allowing companies with extra crude-by-rail capacity to produce more than their provincial quotas.
This should allow some growth to return to the sector. Yet, it wouldn’t be necessary to tinker with quotas if we had sufficient pipeline capacity in the first place.
Meanwhile, the Petroleum Services Association of Canada released a new forecast that only 4,500 oil and gas wells will be drilled in the country next year, a 10 per cent drop from this year’s already-low levels.
Changes to curtailment, less drilling and a high-profile company shifting its corporate base into the U.S. aren’t the problem, they’re the symptoms.
An inability to build pipelines, changing investment patterns, weak commodity prices, the push toward decarbonization and federal regulatory obstacles all signal that growth prospects are limited in Canada, at least for the time being.
And this is what the Encana announcement represents, a steady retreat, a drumbeat of negative news, and a longing for the times when industry was focused on building world-class operators within Canada, not watching them head south.
Chris Varcoe is a Calgary Herald columnist.
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November 01, 2019 at 07:02AM
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