Encana to Split into Separate Oil and Gas Companies

Tag : Natural Bitumen

In Canada, this new gas company will hold lands containing theChinook coalbed methane play in central Alberta, the Big Horn DeepBasin play in northwestern Alberta, and the Cutbank Ridge andSierra resource plays in northeastern British Columbia.

In the U.S., resource plays include Jonah in Wyoming, a significantpresence in the Piceance Basin in Colorado, the Barnett Shale inthe Fort Worth basis and the Deep Boosier play in East Texas.

In addition to the Foothills and USA divisions, this new gascompany will include the offshore and international division andthe midstream assets. Each company will have its own energymarketing operations.

IOC ASSETS
The new integrated oil company (IOC), which will include southernAlberta shallow natural gas, plans to deliver superior, sustainablegrowth from its integrated oilsands business, according to Mr.Ferguson. "Combining the very predictable shallow decline of thePlains production with the high growth of the integrated oilsands,the company will target an annual production growth in the 4% to 6%range," he explained. "Just like EnCana, this is a moderate pace ofgrowth, but we have a high degree of confidence we can deliver forour shareholders."

IOC believes its steam-assisted gravity drainage operations arecapable of annual growth of 15% to 20% for many years to come.Upstream construction is underway to increase production capacityto an estimated average of about 110,000 net barrels of oil per dayby 2012. Current production is approximately 30,000 net barrels aday.
Oilsands production is expected to reach 100,000 b/d (gross) bynext year, but it will require abut 100 mmcf per day of naturalgas, according to Mr. Ferguson. IOC will produce nearly 900 mmcf/dof gas "That provides a tremendous economic hedge for us," Mr.Eresman added. "The shallow gas assets also spin off significantcash flow which can help fund the significant capital investments."

In addition to its SAGD projects at Foster Creek and ChristinaLake, 50% owned with ConocoPhillips, IOC will include the Plainsshallow gas unit, the 100% Borealis SAGD project and an enhancedoil recovery project at Pelican Lake, Alberta.

Other IOC assets will include:
* The world's largest carbon sequestration project at Weyburn,Saskatchewan.
* 50% interest with ConocoPhillips in the Wood River, Illinois andBorger, Texas refineries.
* At year-end 2007 the company had 8.4 million net acres of landonshore North American of which 3.9 million were undeveloped.
* The company will continue to look at the divestiture of minorproperties, targeting about $100 million a year.
* During the first quarter, production was 100,000 b/d of oil andnatural gas liquids and 925 mmcf/d of natural gas while therefineries were processing about 225,000 b/d of net oil.

* By 2016, gross bitumen production from Foster Creek and ChristinaLake is targeted to rise to 400,000 b/d with downstream refiningcapacity increasing to 510,000 b/d.
* The company has identified an inventory of 9,500 future welllocations in its well-established oil and gas plays.

$10.1 BILLION OUTSTANDING DEBT
Recent reductions in proposed Alberta royalties related to deeperwells and longerreach horizontal wells will be "meaningful" in theDeep Basin and the Manville coals respectively, said Mr. Eresman."Both of those areas, I would expect, would be getting largerrequests for capital funding."
While in the short-term, gas production may grow faster in theUnited States than in Canada, north of the border EnCana also hasencountered great possibilities in the Montney tight gas and theDevonian shale gas play at Horn River. At present, production fromthe USA segment accounts for about 55% of total gas production withthe remaining 45% from Canada.

At March 31, 2008, EnCana had long-term debt outstanding of about$10.1 billion, including about $8.2 billion in bonds and long-termnotes. The company said it is working with its financial advisorsto examine alternatives to provide an orderly and cost-efficienttransition of debt between the two companies.
EnCana shareholders are expected to receive one share in each ofthe two companies in exchange for each EnCana share held. Thetransaction is generally expected to be tax-free to shareholders.

The restructuring of the Canadian businesses is expected toaccelerate future taxes that will be recognized in 2008, increasingtaxes by about $1 billion this year. This will be offset by a U.S.tax benefit which will accrue to the gas company in 2010 andsubsequent years as a result of its return to independent producerstatus. The expected net present value of the tax cost of therestructuring is approximately $250 million.

This is EnCana's second attempt at restructuring after itunsuccessfully proposed spinning off assets into a royalty trustmore than 18 months ago. That prompted the federal government onHalloween 2006 to dismantle the trust sector.

Mr. Eresman threatened to pull about $1 billion in capital spendingfrom Alberta after the review panel released its recommendations inSeptember of last year, but he said he was pleased with theprovincial government's decision to review the "unintendedconsequences." (In response to last year's royalty panel report,Mr. Eresman said: "A royalty system can be developed that achievesAlberta's objectives without so severely damaging the province'sfuture.")
Only time will tell whether these two new companies will be activeas acquisitors, or because they are distinct businesses, bought bya larger company looking for excellent exposure to North Americannatural gas or oilsands.

Meanwhile, construction of the Bow continues. It is expected to bethe largest building in Western Canada.
"THIS RESTRUCTURING WILL FORM TWO HIGHLY FOCUSED ENERGY COMPANIES,EACH BUILT ON A FOUNDATION OF PREMIER ASSETS, EACH FOCUSED ON WHATTHEY DO BEST," SAYS ENCANA PRESIDENT AND CEO RANDY ERESMAN.MANAGEMENT EXPERTISE
While David O'Brien is designated Chairman of the Board ofDirectors of EnCana's new gas company, Randy Eresman is adesignated director of the new integrated oil company (IOC).

The designated executives of the new gas company are:
* President and CEO Randy Eresman;
* Chief Financial Officer Sherri Brillon, EnCana's Executive Vice-President, Strategic Planning & Portfolio Management;
* President of Canadian Foothills Mike Graham will continue to leadthis division;
* President of USA Jeff Wojahn will continue to lead this division.
The designated executives of the IOC are:
* President and CFX) Brian Ferguson, EnCana's Chief FinancialOfficer;
* Chief Financial Officer Ivor Ruste, EnCanas Chief Risk Officer;
* President of Integrated Oil John Brannan will continue to leadthis division;
* President of Canadian Plains Don Swystun will continue to leadthis division.
EnCana's other corporate officers will also have executive roles inone of the two companies: Sheila Mclntosh, Executive Vice-President, Corporate Communications; Bill Oliver, Executive Vice-President Corporate Development and President, Midstream &Marketing; Gerry Protti, Executive Vice-President, CorporateRelations and President, Offshore & International Division; andHayward Walls, Executive Vice-President, Corporate Services.
Copyright Northern Star Communications Ltd. May/Jun 2008
(c) 2008 Energy Processing Canada. Provided by ProQuest Informationand Learning. All rights Reserved.

Source: Energy Processing Canada
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