CALGARY - The new CEO of Encana Corp. said Thursday that the energy giant's portfolio is far too big and has far too much weakly-priced natural gas in it, suggesting more asset sales are on the way.
Doug Suttles, sharing his initial impressions of Encana's strengths and weaknesses at an investor conference in New York, also said his company's organizational structure needs an update.
One of Suttles' first moves when he became CEO of the beleaguered company in June was to take a thorough look at what it was doing right, and what needed improvement, based on both internal and external feedback.
The "building blocks" are now in place to chart a new strategy for the company, he said.
"I found some things that are very impressive and give you a lot of confidence and I've also found some things which absolutely must change to be successful going forward," he added.
On the positive side, Suttles said Encana (TSX:ECA) has a big presence in some attractive regions, such as the Duvernay in Alberta and the Tuscaloosa Marine in the southeastern United States.
The company also has a solid understanding of market fundamentals and is a strong and efficient operator in technically challenging areas.
On the negative side — Encana has too much on its plate.
"Our capital allocation process is broken. We're funding way too many plays. We're not prioritizing. We're not focusing our efforts."
To put it in perspective, Suttles said it would take Encana 75 years — possibly more — to tap the potential of its portfolio. Put differently, Suttles said the company could single-handedly meet American natural gas demand for the next three years as its portfolio stands right now.
And the portfolio is too weighted toward dry natural gas, which Suttles sees being "rangebound" at prices between US$3.50 and $4.50 per thousand cubic feet for the next several years. Those prices are a lot better than what the commodity has seen in recent years, but still make it tough to eke out a good profit in some regions.
Another weakness Suttles found was with Encana's organizational structure.
"Our existing organization — both its structure and its size — is aligned with the past and not the future," he said.
"It's built around a bigger capital program and higher cash flow than we have today and we need to get that realigned."
A greater focus will be placed on profitability than on production growth, said Suttles, echoing what his counterpart at Talisman Energy Inc. (TSX:TLM), Hal Kvisle, has said of that company. Talisman, too, has recently changed CEOs and shifted strategy in order to bring more value to shareholders.
In the coming weeks, Encana will be finalizing its strategy and working on how to implement it.
Investors in Encana have been anxious to see a turnaround at the company, which has been struggling with low commodity prices for years. It has made a string of strategic moves to cope — some more successful than others — such as forming partnerships with deep-pocketed Asian players and chasing after more lucrative liquids-rich natural gas.
John Stephenson, portfolio manager at First Asset Investment Management, said what he heard from Suttles was "all extremely positive."
But "I hope they don't reduce the dividend because they are slower growth," he added.
The company currently pays a quarterly dividend of 20 cents US, representing a current annual yield of 4.6 per cent.
Former CEO Randy Eresman parted ways with the company in January.
Encana shares were up 4.1 per cent at $18.67 in late-afternoon trading Thursday on the Toronto Stock Exchange.