Encana Corp., one of Canada’s oldest and largest energy companies, is moving its corporate headquarters from Calgary to the United States to bolster its access to deep-pocketed investors.
The company, which is also changing its name to Ovintiv Inc., says having a U.S. address will expose it to increasingly larger pools of investment in U.S. index funds and passively managed accounts.
On a conference call on Thursday morning, CEO Doug Suttles insisted the name and “corporate domicile” changes will not affect any Canadian staff, result in any layoffs or divert investment strategies in oil and gas formations in Alberta and B.C.
“Make no mistake, we have a long and proud history in Canada and our assets here are world class,” he said.
“Our returns in Canada continue to be every bit as strong as the rest of our portfolio. We will continue to make profitable investments in the Montney and the Duvernay and manage these assets out of the Calgary office. We do not expect any impact on our Canadian workforce, either in the office or the field.”
Encana’s Canadian address means it isn’t included in stock market indexes with its U.S. peers and therefore doesn’t attract dollars from growing ranks of passive investors, said chief financial officer Corey Code on the call.
“We estimate today that less than 10 per cent of our ownership is comprised of passive accounts, far less than the 30 per cent average for our U.S. peers,” he said.
Analysts said the move is not surprising given Encana’s increased focus on oil and natural gas liquids plays in the United States over the past decade, culminating in its US$5.5 billion all-shares acquisition of U.S. rival Newfield Exploration Co. announced a year ago.
“I am not surprised at all by the move,” said Jennifer Rowland, a U.S.-based analyst with Edward Jones.
“Post the Newfield deal, 60 per cent of Encana’s production is in the U.S. and two of its key growth drivers are in the U.S. … Plus CEO Suttles doesn’t live in Canada; he lives in Denver.”
Alberta Energy Minister Sonya Savage had a similar message. “I am troubled by news that Encana is formally relocating its headquarters to the United States,” she said, in a tweet. “Sadly, I cannot say I’m surprised, as Encana has been shifting its efforts to the US for years, in large part due to harmful policies in Canada.”
Analyst Phil Skolnick of Eight Capital Research said the headquarters move is bound to lead to speculation about a sale of Canadian operations.
“It will beg the question of whether or not ECA will eventually sell or spin out its Canadian assets. We believe in this current market, this is not in the works,” he said in a report.
The company’s shares sank on the news, falling 49 cents, or 8.86 per cent, to $5.04 in midmorning trading on the Toronto Stock Exchange.
Encana can trace its roots to the Canadian Pacific Railway, which was granted subsurface mineral rights by the government of Sir John A. Macdonald, Canada’s first prime minister, as compensation for assuming the risk of developing the railroad. These rights were later inherited by Encana’s predecessors.
Previous iterations of the company included Pan Canadian Petroleum Ltd., formed in 1971, which merged with Alberta Energy Corp. to form EnCana in 2002. EnCana was split into natural gas-weighted Encana and oil company Cenovus Energy Corp. in 2009.
Encana was the largest gas producer in Canada for several years — Suttles said the name change is in part designed to cast off the association with natural gas, a commodity whose overproduction in North America has led to depressed prices for years.
The name change is reminiscent of TransCanada Corp.’s move to officially drop the “Canada” from its name last May, renaming itself TC Energy Corp., a name it said better speaks to the breadth of its pipeline, power generation and energy storage businesses and its operations in Canada, the U.S. and Mexico.
Encana also plans a share consolidation that will see shareholders receive one share of Ovintiv for every five common shares of Encana. It says it will continue to trade on both the Toronto and New York stock exchanges.
The company says the plan, which requires shareholder, stock exchange and court approval, is expected to take effect early next year. It says it doesn’t expect any significant cost.
The change came as Encana announced a third-quarter profit of $149 million or 11 cents per share, up from a profit of $39 million or four cents per share a year ago.