Encana's Response

Some people in the media are labelling Encana's response as a "THREAT".

Sorry, it isn't a THREAT. It will HAPPEN should these changes go through. If projects are not economic, they will not occur. That is what Eresman is saying.

Will the Stelmach conservatives be the Pied Pipers who piped Alberta economy into the sewer?

EnCana plans to cut about $1 billion from 2008 Alberta investments if royalty panel report adopted in full


EnCana seeking a solution that balances more royalty revenue with maintaining a competitive investment climate

CALGARY, Sept. 28 /CNW/ - EnCana Corporation (TSX, NYSE: ECA) has conducted an evaluation of recommendations contained in the Alberta Royalty Review Panel Report. If adopted in full, the royalty changes will negatively impact EnCana's future investments and operations in Alberta and will have a widespread impact on economic activity across the province.

If the proposed recommendations are adopted, EnCana plans to cut its 2008 capital investment in Alberta by about $1 billion, or 30 to 40 percent of the
$2.5 billion to $3 billion the company has planned for Alberta-based activity.
Most of the reductions would be to EnCana's natural gas activity in areas where the proposed royalty scheme makes those activities uneconomic or uncompetitive in its portfolio. The company plans to reallocate capital to investments outside Alberta.

"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. 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," said Randy Eresman, EnCana's President and Chief Executive Officer.

"We do not want this to happen. This does not need to happen. The consequences would be far reaching. 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. A royalty system can be developed that achieves Alberta's objectives without so severely damaging the province's future," Eresman said.

The proposed changes will have immediate and long-term impacts on working Albertans. The magnitude of the expected capital reductions is the tip of the iceberg. In the short term, these changes would mean extensive job losses across the industry. There will be fewer wells drilled, completed, pipelined, operated and serviced. There will be fewer hotel bookings, vehicle purchases, landowner lease payments, restaurant meals and lower property taxes in the areas where EnCana operates, and that is just about every corner of Alberta, from the smallest towns to the biggest cities. More importantly and over the long term, well-paying, permanent jobs will not materialize across Alberta.

"We would greatly regret seeing these job opportunities evaporate. We are Albertans. We care about the people of Alberta and we hope we won't have to make these choices," Eresman stressed.

EnCana will continue to thrive

"As North America's largest natural gas producer, we have built an extensive and diverse portfolio of investment opportunities with the flexibility to strategically deploy capital. With a land base of approximately 27 million net acres onshore North America, our depth of inventory means that EnCana will continue to thrive. We will allocate capital across our portfolio in a disciplined and efficient manner. Most importantly, we have developed the expertise and technology required to unlock maximum value from our resource base. Our current projects and emerging opportunities in British Columbia, Saskatchewan, Colorado, Wyoming and Texas offer continued growth potential and strong returns for our shareholders."

"Our province faces a great future, but only if we solve the economic challenges together, in a spirit of co-operation and collaboration. We are confident that innovative, creative and pragmatic solutions can be found. That is our Alberta history. That is our Alberta tradition. We have found those solutions in the past and we believe we can do it again. We look forward to the opportunity," Eresman said.

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Predictably, the media is attacking this announcement. Here's a choice rant:

By NEIL WAUGH, EDMONTON SUN

Nobody has yet suggested they rename the concrete slab that Randy Eresman is building in downtown Calgary the Tower of Tears.

But by the way the EnCana president and CEO was carrying on last week it might not be a bad idea. ROYALTY REPORT Premier Ed Stelmach's office has been poised for an oilpatch suit to start preaching famine and pestilence following the release of Bill Hunter's mild royalty reform report.

Where the panel urged the complacent Alberta Tories to redesign a royalty and tax regime that "must justify every dollar that does not go to the owners."

In most, but not all, cases, Randy and the shareholders he theoretically works for, are NOT the owners. But merely the hired help contracted to exploit the resource.

Eresman proclaimed, "We are Albertans." Then threatened to "reallocate" a billion bucks to Wyoming and Colorado if Stelmach doesn't back down, and water down his royalty review to "reflect the economic realities" of the energy industry.

One of these realities is the $1.2 million in salary, $1.6 million bonus, 160,000 share options plus the $10 million pension "obligation" that securities filings show Eresman took home last year.

Or EnCana's $8.2 billion in cash flow he was confidently predicting in July. Now it's all doom and gloom. "We do not want this to happen," the top oilman pleaded. "This does not need to happen." JOB LOSS PREDICTION Then he predicted "extensive job losses across the industry" and "long term impacts on working Albertans." Of all the fellows in the shiny oil towers,

Eresman should be the last guy to be griping. Considering he basically got EnCana for free.

That's right F-R-E-E. Peter Lougheed created the Alberta Energy Company - then spun off the shares to Albertans - back in the '70s to have a window on the energy industry.

And sent it on its way with a land base to die for. Both the huge Primrose air weapons range and the equally sprawling Suffield military bloc were rolled into AEC for a bargain basement price tag.

Of course, Lougheed wasn't the only Conservative kind to EnCana. When Pan Canadian Petroleum merged with Alberta Energy to form want Eresman calls "North America's leading" gas and oilsands outfit, it brought with it the massive land grants that Sir John A. Macdonald showered on the Canadian Pacific Railway.

Eresman could also have been hauled before the Committee for Un-Albertan Activities last year when EnCana announced its dubious deal with ConnocoPhillips to ship raw bitumen from its Christina Lake and Foster Creek plays to a rust bucket refinery in Borger, Texas. It was pretty provocative. Especially when Stelmach was on the campaign trail comparing raw bitumen shipments to Texas to stripping the "topsoil" from a farm.

Now he's threatening to move his drilling funds stateside, too. Or is he? Because there's a curious run-on paragraph at the end of Eresman's press release of doom - obviously inserted by lawyers scared of a run-in with the U.S. securities authorities - where readers are urged "not to place undue reliance" on the EnCana boss's meltdown.

NO GREAT SECRET

No kidding. It's no great secret that this winter's drilling season is going to be a bust because of rock bottom gas prices.

EnCana, like every other gas company, is slashing its development budget to reflect the new reality. Eresman, sadly, appears to have turned his cost cutting into a political stunt. Stelmach tried to defuse the situation, urging Eresman to "take a deep breath." But the royalty reform and the raw bitumen strategy are still going full steam ahead. And it's going to be another

Double Whammy Week for the oilpatch. Tomorrow Auditor General Fred (Get 'er) Dunn drops his own damning report which will say former energy ministers covered up the royalty rip off for years.

The next day the environment department will release its tough Cumulative Effects Strategy telling the oil industry it's no longer free to drill where it likes.

I predict more tears.