Canada’s oilpatch DEFENDERS
‘ 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.