Lament for a National Champion

Gwyn Morgan
December 3, 2018
Gwyn Morgan retired as CEO of Encana Corp. in 2006 after building it into Canada’s largest energy company and the largest of all Canadian companies by stock market value. It was the defacto flagship of former Prime Minister Stephen Harper’s vision of Canada as an “global energy superpower”. Now, a dozen years later, that dream lies in the ruins of current national energy policy, and Morgan’s successors have effectively moved Encana to the U.S. to escape Canada’s self-destructive business climate.

Lament for a National Champion

Gwyn Morgan
December 3, 2018
Gwyn Morgan retired as CEO of Encana Corp. in 2006 after building it into Canada’s largest energy company and the largest of all Canadian companies by stock market value. It was the defacto flagship of former Prime Minister Stephen Harper’s vision of Canada as an “global energy superpower”. Now, a dozen years later, that dream lies in the ruins of current national energy policy, and Morgan’s successors have effectively moved Encana to the U.S. to escape Canada’s self-destructive business climate.
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My belief in the importance of Canada-headquartered companies goes back to the early 1970s when, as a young engineer, I joined the Canadian subsidiary of a Nebraska-based oil and gas company. While I was treated well and given substantial responsibility, I yearned to work for a company where the decisions were made in Calgary, not Omaha. That opportunity came with a new startup called the Alberta Energy Company. I joined AEC to head the building of the oil and gas division.

The company grew quickly. But five years later, the entire oil and gas industry was struck a huge blow by Prime Minister Pierre Trudeau’s National Energy Program that capped oil prices below world levels and slapped a confiscatory tax on the gross revenues of energy companies. Canada-headquartered companies were supposed to benefit from cash grants, provided we shifted our drilling to federally owned lands. But most of those lands were in the Arctic where drilling costs were prohibitive and access to pipelines non-existent. After the Mulroney Conservatives undid the Trudeau policies in 1985, AEC got back to the job of company building.

Not long after I became the company’s CEO in 1994, American takeovers of Canadian oil and gas companies began accelerating. Having grown AEC into one of the two domestic energy companies with the largest market value, rivalled only by PanCanadian Petroleum (a member the venerable Canadian Pacific group), we managed to avoid that fate. But market intelligence revealed we were on the radar screen of some big multinational majors with the capacity to take us out. We knew that the best defence was to become an even larger energy company. On Jan. 28, 2002, Alberta Energy and PanCanadian announced a $27 billion “merger of equals” that would create the world’s largest publicly traded independent oil and gas producer.

Given my career-long belief in the importance of Canadian-controlled companies, it was important that the name of our new company symbolize its status as Canada’s flagship energy company. Hence the name Encana — from the words “Energy Canada.”

Our merger announcement set off a two-month regulatory period for gaining shareholder approval. During those two months, both companies would be, in stock market lexicon, “in play” and vulnerable to takeover attempts from one of the global majors.

Meanwhile, then-Prime Minister Jean Chrétien’s government was facing criticism over the continuing loss of Canadian head offices to foreign takeovers. Without the merger, there was a very real possibility that both of Canada’s largest energy companies could fall into foreign hands. We urgently needed the federal government’s help to keep that from happening. Hence, when PanCanadian Chairman David O’Brien and I embarked on our mission to convince shareholders to vote for the deal, our first stop was the prime minister’s office.

The result was an unprecedented statement in the House of Commons by the minister of natural resources that the creation of Encana was in the national interest. Then-Finance Minister Paul Martin also made strongly supportive comments a few days later. These statements were critical to repelling potential takeover attempts that would have derailed our merger.

Employees of the two companies united in our mission of “energy for people.” When I retired four years later, Encana was our country’s largest energy company and also the largest of all Canadian companies by stock market value. My dream of building a Canada-headquartered energy company, invulnerable to takeover, had become a reality.

I could never have imagined that, a dozen years later, the company would decide to export itself.

An Encana LNG facility in Strathmore, Alberta. (Image: Encana/Facebook)

Over the past three years, Encana has shifted much of its multi-billon-dollar capital program to the United States. Then, last May, Encana CEO Doug Suttles moved from Calgary to Denver. This month came news of Encana’s $7.7 billion acquisition of U.S. producer Newfield Exploration. That means Encana’s largest production region will now be the United States, not Canada.

Reluctant to state that stark reality in so many words, Encana’s CEO has instead said the company will now be “headquarterless”. But with half its board of directors, 60 percent of its production and the vast majority of its capital program south of the border, it’s impossible to deny that Canada’s flagship energy company has now become Americanized.

Disappointed as I am by this turn of events, I cannot blame Suttles. He and his board have a responsibility to invest shareholder capital where production can be delivered and sold at international prices. The day of the Newfield announcement, Canadian oil was selling at US$19.10 a barrel, while prices were US$63.10 in Texas. Canada’s captive-market discount gives away more than $100 million a day as a gift to American buyers.

The past few years have been a nightmare for the Canadian industry, where every light at the end of the tunnel has turned out to be train driven by Prime Minister Justin Trudeau barrelling at us from the opposite direction. His oil tanker ban in northern B.C. and his refusal to allow a pipeline in the Great Bear Rainforest killed Northern Gateway. And his introduction of a post-regulatory hearing requirement to consider “upstream emissions” forced TransCanada to abandon its nation-building Energy East Pipeline that would have replaced foreign oil. Meanwhile, hundreds of tankers carrying oil from Saudi Arabia and other countries make their way up the St. Lawrence without any such emissions reviews.

That left the now-stymied Trans Mountain expansion as the only hope of getting Canadian oil to tidewater. As if this weren’t enough to deter investment in Canada’s oil and gas industry, Bill C-69, the so-called Impact Assessment Act, now before the Senate, will make the chances of accomplishing resource infrastructure projects seem near impossible to investors. And then there are carbon taxes that will hit the industry particularly hard. These are the disastrous actions that are killing what has long been Canada’s most economically important industry.

The story of Encana’s creation and rise features the important actions of one Liberal government, many decades ago, that, whatever its other mistakes, at least believed in the importance of a strong domestic oil and gas industry. And now the sad story of Encana’s Americanization features the actions of another Liberal government that is ideologically opposed to the industry’s very existence.

Gwyn Morgan is the retired founding CEO of Encana Corp. This article first appeared in the Financial Post.

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