CALGARY (CP) – Encana Corp. is cutting its workforce by 20 per cent, slashing its dividend and spinning off a huge chunk of its Alberta land holdings into a new public company as part of a "bold'' strategy unveiled by its new CEO on Tuesday.
Since taking the reins in June, former BP executive Doug Suttles has signalled that huge changes would be coming for natural-gas focused Encana, which has long struggled with low commodity prices.
Suttles has previously said Encana would become a leaner, more profitable company under his leadership. On Tuesday he expanded on that, announcing Encana would focus on its five best resource areas across North America, instead of juggling 30 different areas.
Encana will be closing its Dallas-area office and consolidating work in Calgary and Denver. As of late 2012, Encana currently has just over 4,000 full-time employees.
“We need to align our organization with our strategy, both in terms of scale and in structure,'' Suttles told analysts on a conference call. “Unfortunately the net result of this is we need a smaller workforce than we have today and will result in about a 20 per cent reduction to our current workforce.''
The job cuts should be mostly complete by the end of this year, Suttles said. He recently announced a reorganization of the company's management ranks, which included the departure of five executives.
Encana also announced that its quarterly dividend will be cut to seven cents from 20 cents per share – a move that had widely been expected.
“This is not the first place we began when we looked at strategy. We first believed that we needed to get our cost structures and efficiencies right,'' said Suttles. “The dividend must be sustainable through a volatile commodity price environment. We see the dividend as an important part of our total shareholder return and it's important that we maintain a strong balance sheet and our investment grade rating.''
The company's statement said about five million acres of Alberta lands and associated royalty interests, currently known as Encana's Clearwater region, will be transferred to a new public company next year. Encana holds the oil and gas rights on those lands – which stretch throughout huge parts of the province – and can collect royalties on production.
Suttles was unable to divulge many details on the Clearwater play, as Encana is preparing to take that company public around the middle of next year. He said he expects there to be strong interest in the initial public offering, as most of the cash flow from the royalty interest will be doled out to investors.
“This is incredibly immense. It's a legacy asset of the company's and it has a lot of potential in the future,'' said Suttles. “The intention of taking this public is to unlock the potential that this opportunity affords.''
Encana plans on putting non-core natural gas assets on the sale block, but Suttles stressed that those divestitures aren't necessary for his strategy to be successful. The company does intend to hang on to some of those properties though.
“We want to retain some of that because just as soon as you think you know what commodity prices are going to do, you find out you're wrong,'' said Suttles. “A number of our assets are really, really well positioned if gas prices strengthened over the next few years and we'd want to invest into those.''
Encana expects next year's capital spending to be around $2.5 billion, though it will flesh out the details next month. About 75 per cent of that will be on five resource regions that offer higher returns because they are rich in oil and natural gas liquids.
They include the Montney area in northeastern British Columbia and the Duvernay area in Alberta. The others are the DJ Basin, San Juan Basin and Tuscaloosa Marine Shale in the United States.
Encana shares rose 4.6 per cent to $19.45 in mid-morning trading on the Toronto Stock Exchange.
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