Encana Like Penn West Gets U.S. CEO for BounceRebecca Penty
Encana Corp., Canada’s largest natural gas producer, becomes the second energy company in a week to hire a U.S. chief executive officer to lead a turnaround as shares in the industry trail their U.S. peers by almost 50 percent in the last three years.
Encana follows Penn West Petroleum Ltd. as it seeks to cut costs, sell assets and add partners to recover from a 73 percent slump in North American gas prices since the decade’s high in 2008. Doug Suttles, the former BP Plc executive who led the response to the 2010 Gulf of Mexico oil spill, can more easily make the decisions required to revive Encana than an internal candidate, according to Matco Financial Inc.
“You need an outsider’s perspective,” said Daniel Cheng, a portfolio manager at Matco in Calgary who helps oversee C$420 million ($406 million), including Encana shares. “A lot of these companies are focusing back on their profitability” and cutting expenses, which is more difficult to do from within, Cheng said in a phone interview yesterday.
Encana shares have tumbled 46 percent in the last three years, compared with a loss of 3.2 percent on the Standard & Poor’s/TSX Energy Index. The S&P 500 Energy Index, in which the largest U.S. producers are listed, has gained 45 percent during the same period.
Canadian energy stocks are trailing U.S. peers as gas produced in western Canada, farther from the continent’s largest urban centers, is discounted from prices in New York amid rising U.S. output. A lack of pipelines to handle increasing oil volumes also threatens Canadian crude exports.
Last week, Penn West named David Roberts, the former chief operating officer of Marathon Oil Corp., to replace its outgoing CEO Murray Nunns on June 19. Clayton Paradis, a Penn West spokesman, didn’t immediately return phone and e-mail messages yesterday.
As the first Encana CEO from outside the company, Suttles plans to take several months to form a strategy, which the board has mandated must show results in the next two years. Encana, which spun off its oil production business in 2009, has been spending to boost volumes of higher-priced crude and liquids while keeping gas output unchanged.
Suttles told reporters at Encana’s head office in Calgary yesterday that he would examine the company’s assets “to deliver sustainable value for shareholders.” Encana’s production is about 92 percent gas, according to data compiled by Bloomberg.
“We’re looking at results over the next 12 to 24 months,” Clayton Woitas, Encana’s incoming chairman and the interim CEO who Suttles replaced, told reporters. Suttles’ position as an outsider didn’t factor into his appointment, Woitas said, as the board considered candidates’ leadership, communication, vision and ability to strategize.
At the right price, Encana is “susceptible to a takeover,” Woitas said, answering a question on whether Canada’s foreign-takeover rules would prevent the company’s purchase.
Woitas, a director who took over in January when Randy Eresman retired after seven years in charge, will transition into the role of chairman in the next few months, according to Jay Averill, an Encana spokesman. The company’s shares fell 32 percent during Eresman’s tenure as North American gas prices plunged on a glut brought on by drilling in shale formations.
Encana had its worst year in 2012, reporting a $2.79 billion net loss after writing down the value of gas assets because of declining prices. The company’s shares fell 1.8 percent to C$18.00 in Toronto today.
More outside executives are needed to change the “clubby” culture in Calgary, said John Stephenson, who helps oversee C$2.7 billion ($2.64 billion) including Encana shares at First Asset Investment Management Inc. in Toronto.
“In the case of Encana, I think they need to change and they need to change fast,” Stephenson said.
Encana’s turnaround may not be quick, according to Phil Skolnick, an analyst at Canaccord Genuity Corp. in New York who rates the stock a hold. “Investors must now wait for a strategy update which is likely to take months to formulate and then longer to execute, in our view,” Skolnick wrote in a note to clients yesterday.
Suttles was chief operating officer of BP’s exploration and production unit and the face of the company’s effort to halt the flow of oil after the April 2010 explosion at the Macondo field, the largest offshore spill in U.S. history.
He will lead a mid-year review over the next month to assess any required significant changes to the company’s 2013 capital budget, which will be announced with second-quarter results in July, he said. On a call with analysts, he also committed to continuously improving capital efficiency, a metric to evaluate how well the company allocates spending.
“I want to take the time to do this right,” Suttles told reporters. “I don’t want a false start here.”