EnCana to cut $1-billion if royalties rise

EnCana to cut $1-billion if royalties rise by John Partridge, September 28, 2007, Globe and Mail
In the latest salvo in a thundering barrage of industry criticism, Canadian natural gas and oil sands giant EnCana Corp. [ECA-T]says it will slash its investment in Alberta by up to 40 per cent or $1-billion next year if the province fully implements recommendations to sharply boost royalties contained in a recent review by an independent panel. “If the Royalty Panel’s recommendations are adopted in full, many of Alberta’s new and emerging resource plays will simply not be economically viable,” EnCana chief executive officer Randy Eresman said in a news release issued before stock markets opened Friday.

“These new plays would have formed the foundation for the future of Alberta’s natural gas production. Even without that future gas production growth, under the recommended changes EnCana’s royalties on Crown lands would effectively double, assuming current gas prices. We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the U.S. that are more economically attractive. As a further consequence, Alberta natural gas production will continue to fall.”

EnCana’s statement, which also warns of heavy job losses across the oil patch and other harsh economic consequences throughout the province, is one of the most detailed industry responses yet to the panel’s report, which was submitted to the provincial government Sept. 18.

The panel’s report concluded that Alberta is missing out on billions of dollars in oil and gas money, especially from the oil sands.

“Our current projects and emerging opportunities in British Columbia, Saskatchewan, Colorado, Wyoming and Texas offer continued growth potential and strong returns for our shareholders,” Mr. Eresman said.

The Globe and Mail reported earlier this week that British energy consultancy Wood Mackenzie that Alberta would remain one of the cheaper places around the globe for oil and gas producers to do business, even if the royalty panel’s recommendations are fully adopted. [Emphasis added]

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