Canada’s oil­patch DE­FEND­ERS

National Post (Latest Edition) - - FINANCIAL POST - Ge­of­frey Mor­gan Fi­nan­cial Post gmor­gan@na­tion­al­post.com Twit­ter.com/ge­of­frey­mor­gan

‘ The world tak­ing on North Amer­ica had bet­ter be ready be­cause this part of the world knows how to get ef­fi­cient’

—En­cana CEO Doug Sut­tles

‘One of a few voices in Western Canada … that is go­ing to be cham­pi­oning oil and pipe­lines’ —Quito Maggi, Main street Re­search, on Saskatchewan

Premier Brad Wall

CAL­GARY• North Amer­i­can en­ergy pro­duc­ers are ready for a global cost-cut­ting bat­tle, the head of En­cana Corp. said Wed­nes­day, even as his com­pany posted a US$ 612- mil­lion loss in the fourth quar­ter.

“The world tak­ing on North Amer­ica had bet­ter be ready be­cause this part of the world knows how to get ef­fi­cient, and you’re see­ing it ev­ery day,” En­cana pres­i­dent and CEO Doug Sut­tles said dur­ing his com­pany’s quar­terly earn­ings call.

Sut­tles did not specif­i­cally men­tion OPEC, but in­di­cated that com­pa­nies such as En­cana were cut­ting costs to com­pete with for­eign oil pro­duc­ing coun­tries.

On Tues­day, Saudi Ara­bian Oil Min­is­ter Ali Al-Naimi told North Amer­i­can oil pro­duc­ers at a global en­ergy con­fer­ence in Hous­ton to lower their costs or “get out.”

“It sounds harsh, and un­for­tu­nately it is, but it is the most ef­fi­cient way to re­bal­ance the mar­kets. Cut­ting low- cost pro­duc­tion to sub­si­dize higher- cost sup­plies only de­lays an in­evitable reck­on­ing,” Al- Naimi said, while deny­ing Saudi Ara­bia is try­ing to en­gage in a price war with shale-oil pro­duc­ers.

Cal­gary- based En­cana, which pro­duces oil and gas from shale plays in Texas, Al­berta and Bri­tish Columbia, con­firmed that pro­duc­tion from its main oil and gas plays is set to de­cline by about 10 per cent this year, as it re­duces its drilling and spend­ing plans.

Sut­tles said the com­pany was cut­ting costs to be able to com­pete in a “lower for longer oil price en­vi­ron­ment.” The North Amer­i­can bench­mark West Texas In­ter­me­di­ate for April de­liv­ery rose 28 U. S. cents, or 0.9 per cent, to set­tle at US$32.15 a bar­rel on the New York Mer­can­tile Ex­change.

En­cana posted a US$ 612mil­lion net loss in the fourth quar­ter, com­pared with earn­ings of US$198 mil­lion in the same quar­ter a year ear­lier. Much of that loss was from the com­pany’s US$ 514 mil­lion in im­pair­ment charges in the fourth quar­ter.

Among its cost- cut­ting mea­sures, En­cana an­nounced it was lay­ing off an­other 20 per cent of its staff, while also ask­ing em­ploy­ees to take sab­bat­i­cals or con­tract po­si­tions or ask­ing them to leave of­fice jobs for field-based po­si­tions. It did not say how many jobs that was.

When t he newly an­nounced lay­offs are in­cluded, En­cana has cut more than half of its staff since 2013 — roughly 2,300 peo­ple based on its head­count at the be­gin­ning of that year.

“It’s a tough time to be some­one who works in the oil and gas in­dus­try. The job re­duc­tions, not only at En­cana but across the in­dus­try, are as se­vere as I have seen in over 33 years,” Sut­tles said.

De­spite all the cuts, an­a­lysts are still con­cerned about the com­pany’s abil­ity to cover its ex­penses.

“They’ve def­i­nitely been able to grind down costs quite ag­gres­sively. I would say that com­pa­nies like En­cana and Cen­ovus had more to cut than oth­ers, so the mag­ni­tude of their cuts are prob­a­bly big­ger than oth­ers,” Na­tional Bank Fi­nan­cial an­a­lyst Kyle Pre­ston said.

“Their cash flow is go­ing to be, on our num­bers, some­where be­tween US$700 and US$ 800 mil­lion but their spend­ing is go­ing to be US$ 950 mil­lion on cap­i­tal ex­pen­di­tures, so there’s still a cash short­fall there,” Pre­ston said.

Morn­ingstar an­a­lyst David Meats said En­Cana’s cost­cut­ting mea­sures have been more suc­cess­ful than many an­a­lysts were ex­pect­ing: The com­pany re­duced its cap­i­tal and op­er­at­ing ex­penses by US$400 mil­lion in 2015.

The com­pany plans to cut an ad­di­tional US$ 200 mil­lion to US$ 250 mil­lion in costs over the course of 2016.

MARK TAY­LOR / THE CANA­DIAN PRESS

TED RHODES / CAL­GARY HER­ALD

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