David Olive: Is Encana crazy as fox?
Encana Corp.’s controversial planned acquisition of U.S. shale producer Newfield Exploration Co. in a $5.5-billion (U.S.) deal has more merit than appears.
News of the agreed takeover, unveiled last Thursday, sent Encana shares plunging on the Toronto Stock Exchange as much as 18 per cent in intra-day trading – the biggest such drop on record.
True, this is the biggest deal in Encana’s history. It’s also true Encana has been a big-time disappoint for investors, with a current stock price of about $12 that is 87 per cent below its 2008 peak.
The deal appears to reverse management’s strategy of slimming down its assets, and gets Encana into what for it is terra incognita, in Oklahoma, North Dakota and Utah shale fields.
The deal also, however, transforms an Encana with an unclear identity – opting for a “headquarterless” model hasn’t helped – into a more focused enterprise, as North America’s second-largest shale explorer.
This at a time when the U.S. shale industry, with its prodigious output and low-cost production, has eclipsed Saudi Arabia as the world’s largest oil producer.
It’s also a timely move to greatly reduce Encana’s Canadian exposure at a time of transportation bottlenecks and a near-record price discount for Western Canada Select (WCS).
Encana should see significant earnings growth, and soon, simply by having much more of its total production fetching the much higher West Texas Intermediate (WTI) benchmark price.
With the stock plunge, CEO Doug Suttles got a sobering reminder of just how soured Bay Street is on what could be called the “old Encana.”
But the Newfield deal should enable Suttles to make good on his promise to boost dividends and generate cash for share buybacks.
No one likes a whiner
In reporting spectacular third-quarter results last week, Canadian Natural Resources Ltd. (CNR) somewhat inexplicably unloaded on all the purported culprits making its life difficult – and, by extension, misery in the entire oilpatch.
In an earnings call with analysts, Tim McKay, CNR’s chief operating officer, excoriated Canada’s “dysfunctional regulatory, legal and political systems that allow endless delays to be put forward by minor distractors.”
By which CNR can only mean that fretful residents of B.C.’s coastline, Indigenous groups, environmental experts at home and abroad, and a Federal Court of Appeal that blocked the proposed expansion of a Trans Mountain pipeline that Ottawa is striving to get built for CNR and its peers are all inconsequential.
And, perforce, that the world should revolve around CNR.
It’s that sentiment that so powerfully works against the oilpatch’s interests – its tradition of blaming others for its woes.
Which can’t amount to all that much, given the soaring third-quarter profits for CNR, which more than doubled; for MEG Energy Inc. (up 41 per cent); and for Suncor Inc. (up 85 per cent).
As an army of critics have noted, the National Energy Board (NEB) has long been super-friendly to the oilpatch, a practice that backfired when the court ruling against Trans Mountain implicitly suggested the NEB had done an insufficient job in protecting the people and the land in approving a Trans Mountain expansion.
It’s no one’s fault but the oilpatch’s that producers over-expanded in recent years in full knowledge that pipeline capacity restraints would be the result.
Or that peers didn’t adopt the Suncor model of dedicated pipelines and its own, Canadian, refineries.
Suncor’s peers, by contrast, are hostage to the low prices paid by U.S. heavy oil refiners.
Amazon caves to Trump
This week, Amazon.com Inc. ceases its practice of e-mailing customers with stories in The Washington Post, owned by Amazon founder and CEO Jeff Bezos.
The move has been praised by marketing experts as a step away from politics by the world’s biggest online retailer.
Amazon continues to pursue similar cross-marketing opportunities at its Whole Foods Market and Internet Movie Database (IMDb) units.
Amazon has long been seen as somehow jeopardized by U.S. President Donald Trump’s regard for the Post as Amazon’s “chief lobbyist.”
The evidence suggests, however, that Amazon’s robust team of real lobbyists in Washington has secured for Amazon most of what it wants by way of Amazon-friendly tax law, for instance, and intellectual property protections in the recently agreed U.S.-Mexico-Canada Agreement (USMCA).
The Post is routinely described as an anti-Trump attack dog.
But it’s the New York Times that has broken most of the devastating stories about a dysfunctional Trump White House, not the Post. Which explains why Trump’s Twitter rants have mostly been directed at the “money-losing NYT.” (Actually, the New York Times Co. has been impressively profitable for several years.)
Bezos long ago broke with U.S. tech CEOs in keeping his qualms to himself about, for instance, Trump’s injurious anti-immigrant outspokenness, which contributes to skills shortages in America’s high-tech industries.
Most telling is that the Post stories “pushed” to Amazon customers were the paper’s best-read stories, most of which had nothing to do with Trump or politics.
That suggests a Bezos who’s running scared – a victory of sorts for Trump, and a mild blow to a free press that Trump has called an enemy of the people.