EnCana Corporation's (EnCana) board has unanimously approved plans to proceed with a corporate reorganization to split EnCana into two energy companies; EnCana (GasCo) and Cenovus Energy Inc.
This transaction, expected to close November 30, 2009, is designed to enhance long-term value for EnCana shareholders by creating two publicly traded companies, each with an ability to pursue and achieve greater success by employing operational strategies best suited to its assets and business plans.
EnCana first announced the proposed corporate reorganization on May 11, 2008 and was advancing plans for the split last fall when the global debt and equity markets experienced unprecedented turmoil and volatility. Given that uncertainty, EnCana announced on October 15, 2008 a revision to the original reorganization schedule and delayed seeking shareholder and court approval for the transaction until clear signs of stability returned to the financial markets.
“We believe the conditions are now favourable to proceed with the split. Equity and debt markets have improved significantly with debt financing available at reasonable cost. Global and national economic indicators suggest that the world’s economies are showing promising signs of recovery. As well, the strategic rationale for creating two leading energy companies remains as sound as ever – the conversion of one leading unconventional resource company into two independent, premium entities unlocks greater long-term shareholder value from industry-leading North American energy assets,” said Randy Eresman, EnCana’s president and chief executive officer.
“While natural gas prices are currently low, we have reduced our near-term commodity price risk by hedging a significant portion of our expected production for the 2009-2010 gas year. We are a leader in low-cost natural gas production and our continued pursuit of that objective helps us enhance our competitive position during periods of low commodity prices.
Over the longer term, we believe the current low natural gas prices are not sustainable and we expect a recovery in prices in 2010,” Eresman said.
Strengthened foundation for creating two energy companies
“In addition, the financial and operational strength of each company’s asset base has improved during the past year. Additional drilling in our natural gas shale plays has advanced our understanding of their enormous potential and increased our confidence in our ability to grow these prolific new natural gas supplies from the Montney, Horn River and Haynesville plays. With the start up of two new phases at Foster Creek and continued production increases from Christina Lake, gross production from these enhanced oil recovery projects now exceeds 100,000 barrels per day, a significant milestone in the long-term oil growth plan for the assets that will be transferred to Cenovus. Construction of our coker and refinery expansion (CORE) project at the Wood River refinery is past the midpoint. It is on time and on budget, and is expected to start up expanded capacity in early 2011. And overall, looking at the financial position of EnCana, our debt at August 31, 2009 was about $8.2 billion, down about 19 percent from when we first announced our plan to split in May 2008,” Eresman said.
Well advanced reorganization plans lower transaction risks
“Our extensive work in the past year has helped reduce the risks associated with the transaction. We have received tax rulings from the Canadian and U.S. federal tax authorities that confirm, subject to the terms of the rulings, that the transactions will not be taxable from a corporate and shareholder perspective. We have secured committed financing for Cenovus that will support its independent business plan. We have acquired and built much of the infrastructure for Cenovus’s information technology systems. The leadership teams have been identified and employees have been assigned to new or continuing roles in each of the proposed companies. Having completed this foundational work, and with the return of financial market stability, we are proceeding with this value-creating transaction in a prompt and prudent manner,” Eresman said.