Talking straight: EnCana boss Randy Eresman
EnCana threatens to cool Alberta drills
Canada’s EnCana said today it will slash 2008 capital spending in Alberta by $1 billion if a panel's recommendations to boost royalties and taxes in the western Canadian province are adopted in full.
In the latest industry attack on the report by the government-appointed royalty review panel, EnCana said such a cut would represent about 30% to 40% of its $2.5 billion to $3 billion planned investment in Alberta.
Reductions would largely affect natural gas activity in areas where the proposed royalty scheme makes them uneconomical or uncompetitive, it said. The company said it would reallocate capital to investments outside Alberta.
EnCana produces about half its natural gas in Alberta, a volume of about 1.7 billion cubic feet per day.
The royalty report said Alberta's take from oil activity should rise by 20%, or about C$2 billion, a year.
The recommendations have drawn sharp criticism from the oil industry and its backers, which argue that imposing the recommendations will scare away investment in Canada's main producing province.
"We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the US that are more economically attractive," chief executive Randy Eresman said in a statement.
"We do not want this to happen. This does not need to happen ... We are open to changes to Alberta's royalties - changes that reflect the economic realities of volatile commodity prices, higher costs and the appropriate risks and rewards of long-term capital investments."
The company also has natural gas operations in British Columbia, Colorado, Wyoming and Texas.
EnCana spokesman Alan Boras refused to characterize the announcement as a threat, saying the company felt obliged to inform investors, employees and suppliers about the impact on operations should Alberta Premier Ed Stelmach adopt the measures proposed in the report, entitled "Our Fair Share".
Boras said he did not know how much EnCana's gas output would drop if it spent $1 billion less on drilling over the course of a year. Last December, the company said it cut spending on all its operations by $400 million for 2007, blaming inflation in western Canadian oil field service costs.
"This is just a report, but over time, if you're drilling fewer wells the decline rate carries on. Alberta's gas production would drop," he said.
Yesterday, one member of the panel, Evan Chrapko, said he believed industry furor over the report was misplaced as much of the report's findings were based on submissions from the oil and gas industry.
EnCana shares were up 54 Canadian cents at C$61.87 9 (C$61.87) on the Toronto Stock Exchange. They are off 4.5% since 18 September, when the six-member panel issued its 104-page report.