CALGARY - Canada's energy capital will have to make room for another huge player, as EnCana Corp., one of the country's most prominent oil and gas producers, splits itself off into two separate Calgary-based companies.
The proposed corporate overhaul would create a publicly traded integrated oil company -- with a working name of IntegratedOilCo (IOCo) -- that would focus on developing EnCana's oilsands assets and linking production to U.S. refineries.
The second company -- tentatively named GasCo, but expected to keep the EnCana name -- will be aimed at growing the enormous Canadian and U.S. unconventional gas plays in which EnCana already has a huge stake.
"Today's announcement represents a logical next step in the evolution of EnCana,'' Randy Eresman, the company's chief executive officer, told reporters Sunday. "With this restructuring, we will form two highly focused energy companies -- each built on a foundation of premier assets, each focused on what they do best.''
Eresman will run GasCo and the company's current chief financial officer, Brian Ferguson, will run IOCo.
"This is an exciting time for EnCana, for its shareholders, its employees and for me personally,'' Ferguson said at the news conference. "I'm proud to be part of this new high growth integrated oil company.
"We plan to deliver superior, sustainable growth for our integrated oilsands business.''
The transaction is expected to be completed in early 2009.
The two businesses will share an office tower currently under construction in downtown Calgary, which is set to be completed in 2011.
"We might have to fight over who gets the top floor,'' Eresman said with a chuckle.
EnCana, which has an enterprise value of about US$75 billion, employs about 6,500 people -- 500 of whom work at its Calgary headquarters.
Dividing up the staff between the gas and oil companies will be complicated, but Eresman said he isn't too concerned about finding enough people in Calgary's strapped labour market to fill the vacancies the restructuring will create.
"EnCana is already significantly separated into its divisional structure . . . so it's not going to be quite as much as if we were doing this from an unstructured company,'' Eresman said. "I would think with the overall simplification of the two companies' focus, it's unlikely that we'll need to double that 500.''
Based on expected market values, both companies would be amongst Canada's top 20 corporations and among the top six energy companies in Canada, Eresman said.
"Individually, these companies have the potential to shine even brighter when contrasted against their industry peer groups,'' Eresman said.
Under the new organization, investors and analysts can more easily gauge how well each side of the business is doing, he added.
"As a result, we expect that the value associated with the premier assets associated with these businesses will be much more clearly recognized,'' he said. "Ultimately this should provide greater visibility for the value inherent in the assets of each of these independent companies.''
GasCo will grow production at a rate of seven to nine per cent per year, whereas IOCo will grow at four to six per cent each year.
GasCo, which is expected to become the second largest natural gas producer in North America, will represent about two-thirds of the company's current production and proved reserves.
The focus will be on unconventional resources -- natural gas that is harder to get to because it is trapped in geological formations like shale or coalbeds.
While those types of assets require a lot more money and technical savvy to exploit, many big companies are shifting their focus to those so-called "resource plays'' because of the huge potential they hold.
GasCo will continue to develop its existing natural gas plays in Alberta's foothills, the Western United States and in Texas' Barnett Shale and Deep Bossier formations.
It will also develop emerging shale gas hotspots in northeastern B.C., as well as in Louisiana.
EnCana has a major foothold in the oilsands, with 6.5 billion barrels of recoverable oil at its Christina Lake and Foster Creek operations.
Early last year, EnCana reached a US$15-billion deal with Conceptualism to tie in its oilsands production with the U.S. energy heavyweight's American refineries in Illinois and Texas, vastly reducing the risk and cost associated with that type of business.
IOCo will aim to increase gross production from Foster Creek and Christina Lake to about 400,000 barrels of oil per day, and refining capacity to 510,000 barrels of oil per day.
EnCana's shallower, easier-to-drill natural gas resources in Alberta and Saskatchewan will be part of the integrated oil business, since oilsands producers require a huge amount of natural gas in their operations.
Those regions produce much more gas than is needed in the oilsands operations, but Ferguson said the diversity in that business will cut down on some of the commodity price risk.
"We have significantly more production, but what it does is provide a tremendous natural economic hedge for us,'' Ferguson said.
The company's shares, which were worth $86.52 on the Toronto Stock Exchange Friday, have gone up nearly 40 per cent over the past year -- thanks to record-high oil prices.
EnCana shareholders will get a share in each company and dividends of the two companies will be equal to its current US$1.60 per share annually.
In an earlier statement Sunday, EnCana bumped up its cash flow estimates for this year from US$8.8 billion to between US$9.6 billion and US$10 billion.
EnCana was formed in 2002 by a merger between PanCanadian Energy Corp. and Alberta Energy Co.
"Both of the companies will be larger we expect than EnCana was itself at the time of creation of the merger,'' Ferguson said.
