Ewart: Encana’s in-house exoneration only goes so far

Ewart: Encana’s in-house exoneration only goes so far by Stephen Ewart, September 7, 2012, Calgary Herald
Encana was able to balance negative news with positive results from its in-house investigation. “OK folks, nothing to see here, move along -” Maybe it’s just me, but the short statement from Encana chairman David O’Brien exonerating top company executives of collusion this week implanted the cliched image of the cop in old movies urging the curious bystanders on after some incident. Maybe there is nothing to the allegations in the United States, just as Encana’s board of directors concluded after an 11-week investigation by lawyers retained in Canada and the U.S. But self-declared innocence only goes so far. As a research report by CIBC aptly surmised: ECA Cleared of Collusion Charges – sort of. The board’s findings that top Encana executives did not participate in any illicit conduct seemed nothing if not predictable. In his role as board chairman, O’Brien seemingly has the role of judge, jury and … well, essentially just judge and jury as it has turned out. The pronouncement from the Encana board doesn’t resolve the issue. I’m sure many of the curious will reserve judgment until the investigations by both the U.S. Justice Department and the Attorney General in Michigan are complete.

Encana also revealed in O’Brien’s statement that it has been subpoenaed by the Justice Department over the allegations in stories by Reuters news agency that it colluded with rival Chesapeake Energy in Michigan in 2010 to keep land prices down. It was the first time Encana acknowledged the subpoena. It may explain why it provided so few specifics of its investigation. The company has largely been silent on the allegations since they first emerged in June. When it held the conference call for its second-quarter results in July, journalists were warned executives would not answer questions about the issue. After his statement, Encana confirmed O’Brien wouldn’t be doing any interviews with media. If details of email exchanges between Chesapeake executives, including chief executive Aubrey McClendon, Encana USA president Jeff Wojan and others, including CEO Randy Eresman, are to be the subject of a hearing with the Justice Department, there is a risk associated with long public explanations of what the company believes transpired. Regardless, a little more forthright disclosure might help Encana’s credibility.

The subpoena is hardly a surprise given Chesapeake had revealed in regulatory filings it received one on June 30. When the Herald’s Dan Healing asked Encana why the company hadn’t publicized the subpoena earlier, the explanation essentially boiled down to “we wanted to wait until we had a substantial update.” Maybe I watch too much Law & Order on TV, but a Justice Department subpoena over collusion allegations seems fairly substantial. By waiting, of course, Encana was able to balance negative news with positive results from its inhouse investigation. In reality, the “news” cycle turns pretty fast. When Eric Marsh, the senior vice-president for Encana’s USA division, spoke at the Barclays investment conference in New York on Thursday, he made no mention of the allegations, the investigation or O’Brien’s statement less than 24 hours earlier. And no one asked during the question-and-answer session.

Although the CIBC report cautioned the investigations pose a risk of “meaningful external penalties” – if they are substantiated – investors in New York were more interested on Encana’s strategy to diversify its natural gas focus to more crude oil and liquids production through divestitures and joint ventures. The markets also shrugged. Encana gained 41 cents Thursday to $21.77 on the Toronto Stock Exchange and the stock price is far closer to its 52-week high than its 52-week low. Encana has struggled with low gas prices and has worked to put behind it the decision to concentrate almost exclusively on gas production and hive off the company’s considerable oil assets as Cenovus Energy. While the company logo may still proclaim – Encana: natural gas – March’s message to investors was that Encana is committed to a diversified portfolio in North America with half of its future cash flow generated by oil and liquids. He said the strategy will remain even if gas prices recover. Investors were a key audience for O’Brien’s message too. …

Eresman, who was excluded from the board’s inquiry along with the rest of management, issued his own statement that echoed O’Brien’s sentiments. The fact directors and officers of publicly traded companies are obliged to put the interest of shareholders first means they are hardly a disinterested party in any investigation. however professional or exhaustive, of their own company. The conclusions from Encana’s investigation may prove to be accurate and its actions defensible, but until there’s an endorsement of its findings from U.S authorities it’s still not case closed. [Emphasis added]

[Refer also to: EnCana faces California gas price-fixing trial ]

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