Global Environment of Canadian Business - Assignment Example

? Global Environment of Canadian Business Number Submitted Evaluate the Performance of EnCana Introduction EnCana Corporation is considered to be the leading company in the natural gas production. Other than production, it is engaged in the transportation and marketing of natural gas and liquid. The company is operated in two divisions: Canadian Division as well as in USA Division. During the year of 2010, the company completed the acquisition of various lands and properties that have become a complement in the assets of EnCana’s portfolio. After the breakup of Canadian Pacific Limited, EnCana Corporation was an unknown entity in the oil industry of North America. From this position, it evolved and became one of the largest independent Oil and Gas Company of the same state. The earlier leadership of EnCana developed a strategy of focusing on extract unconventional or difficult oil gas when 90% of the hydrocarbon needs were fulfilled by conventional sources. Over the years, advanced technology and expertise have been hired by EnCana so that they can acquire substantial land resources and make it one of the largest land holders in the North American region (Manda & Maldar, 2005). EnCana as one of the successor companies to the break-up of Canadian Pacific Limited In 2002, September, the company was separated into five stand alone companies. Here after the break up, the Pan Canadian Energy Corporation merged with Alberta Energy Co. now called EnCana Corp. (Andy, 2002). The striving young part of Canadian Pacific Limited has struggled a lot throughout the time and now because of their effective leadership and strategies, they have been able to be counted as one of the cheapest and largest natural gas producers of the state. Evaluate the performance of the company on the bases of their Strategy and Leadership Instead of following other energy companies, who were moving into more remote or hostile places like Iraq, seabed of Atlantic Ocean, the early leaders of EnCana changed their strategy and spent three and a half year in dumping the almost every faraway asset of EnCana. Initially, this strategy was unusual and was not supported by many of the business intellectuals. As the owners, even offload the collection of Ecuadorean pipelines and oil fields on the Chinese for around U.S. $ 1.2 billion (Stock house, 2008). From the billions they received in the entire deal making, EnCana managed to acquire the right to drill on the land in Western North America, through government auction. Though it was known to the company that this turf was hard to exploit, but it was very rich in hydro-carbon and gas fields. These reserves are hundreds or even thousands of meters below the Earth’s surface (Bloomberg Business week, 2011). Right strategies by the leadership, has helped the company to survive well in the time of crises. For the oil side, they have used different strategy, the minority stake of the company was sold in the Syncrude oil sands, it is the mining operation in Northern Alberta and concentrated more in, in-situ tar sands projects. Now, the business has increased to this extend that these two units of EnCana run as a separate unit (Patch work, 2011). According to the pioneers of EnCana, the road to success was not difficult but an intelligent game. They focused more on the reserves of unconventional type of gas. According to them, EnCana has signed huge checks for the exploration right. These checks were sometimes based on the limited geological knowledge. However, they were convinced that in future they will find unconventional gas there. Since with the passage of time new drilling and fracturing rock methods will be introduced, the gas will move to the surface, will make the unconventional deposits more economic. As the company has spent millions of dollar in such fields now, they do not have to explore more places. This is because some of their reserved fields are so large that, they can produce unconventional gas for about around 100 of years (Stock house, 2008). This long term strategy has helped them to survive in the years of crises. The New EnCana In North America, EnCana has been considered as a high growth, low cost leader in the production of natural gas. It has been supporting North America’s energy portfolio and tends to provide affordable, abundant and clean resources for the next generation. In the year plan of 2010, they have tried to sharpen their strategic focus on what they can do as a best. This includes responsible exploration, production and development of the natural resources in number of North America’s places (EnCana, 2011). How They Sustained: In order to remain the leaders of their prescribed field, the company has a diversified portfolio of low cost assets, large land and resource position. In the current, economic conditions, being a leader of the market, maintaining a low cost structure is a critical job (AWS Pacific limited, 2011). However, because of the efficient application of innovative technology, they have continued to achieve their goal by providing the cost structure that offers the lowest amount in the industry. EnCana’s enhanced strategic focus to deliver their goal of clean and affordable energy is achieved when the ingenuity and technical leadership of the employees is combined (EnCana, 2011). Performance in 2007-2010 In the year of 2009 the daily gas production hedged up to 50% at an average price of $ 9.13 per thousand cubic feet. For the years of 2008 and 2009, EnCana had debt maturity of over $ 250 million and $ 200 respectively. By the end of 2008, less than 50 percent of the committed credit facilities were used and around $ 2.6 billion was still undrawn. In the years from 2007- 2010, when all the companies were drowning, EnCana was rising. In 2008, they produced approximately 1.4 trillion cubic feet of natural gas from 47 000 wells (EnCana, 2008). In 2007, EnCana delivered tremendous operational and financial performance. The sustainable value creation capacity of the resource play strategy has been evident. It has shown strong production growth of 11 percent per share that delivered $ 1 billion benefit to the cash flow of 2007(Oil Voice, 2010). In the same year, natural gas resource grew 14 percent and oil projects increased 25 percent. In the year of 2010, EnCana is able to achieve its operational and consolidated performance, irrespective of low natural gas price and high demand of supply. These financial challenges were faced with great dignity by EnCana. In the year of 2010, they not only managed to deliver double digit production growth, they have also reduced the cost structure. As a result they have paid a stable dividend to the shareholders. Moreover, they have also invested in the underlying production capacity of the asset. In the same year, EnCana has also managed to maintain its corporate and strategic initiatives. This includes the delivery of the new strategy, advancement of key and emerging resource plays. Moreover, due to the continuous improvement in the structure and policies of the management the realization of significant cost efficiencies were attained (EnCana, 2011). As the balance of priorities grew over the long term production, and the current commodity price was also managed this makes EnCana to remain well positioned among the competitors. Along with this, they have continuously focused on cost efficiency. The performance of EnCana in the crisis years of 2007-2010, has strengthen the business and has surely helped it to become the only highest growth, lower cost senior gas producer in North America (EnCana, 2011). Future Plan of EnCana The basic plan of EnCana is to double its production over the next five years. It is planned to achieve this goal on the base of production on a debt adjustment on the per share basis. This will happen because the asset rationalization is a continuous process for the company. However, in case the average natural gas price is below US $ 6 per MMBTu then the target would not be achieved but EnCana would rise as one of the fastest growing natural gas producers of North America (First Energy Capital, 2010). By 2014, EnCana will have Haynesville, Montney and Horn River as its primary drivers of reserve growth and production. By the end of 2014, in Haynesville, the company plans to increase the production to over 1.2 Bcfe/d. whereas, at Horn River the target is to produce about 500 MMcfe/d and in the same time frame in Montney, the expected production is over 600 MMcfe (First Energy Capital, 2010). As per the capital spending, in the year of 2011-2014, at average it is expected to be $ 6 billion per year. It will focus to accelerate the production growth in the high impact plays and maintain steady growth in its other key resources plays. According to EnCana’s estimate, it has inventory of 23000 net drilling locations and over 28 Tcfe of resources. Other than this, by the year of 2014, they are planning to drill around 2500 wells (First Energy Capital, 2010). Reasons that enable EnCana to achieve it double digit production growth: The large resource base provides a substantial inventory of drilling opportunities. Secondly, the supply cost of key resource plays around UD $ 4 / MMBtu, this will make the company to earn a satisfactory return on the capital. Thus, it will help them to maintain the gas price that is lower to its competitors. Moreover, due to the abundant supply of shale gas the natural gas industry has changed permanently. Therefore, the lowered long-term price has increased the importance of low cost producers (First Energy Capital, 2010). Conclusion In the face of tough financing environment, worldwide, energy investment is plunging; this results, in weakening the final demand for the energy and fall in the cash flow and affecting the supply and demand side of the investors. As a result, energy companies are drilling fewer oil and gas wells and are cutting back on pipelines, refineries and power stations. However, in such a financial crisis, EnCana has managed to retain their standard by utilizing their far sightedness and investing in areas rich in unconventional gas (EnCana Natural gas, 2011). Unlike EnCana its competitor were unable to maintain this standard. . On the account of EnCana there is a strong balance sheet that is composed by 100 percent of its outstanding debt; composed of fixed- rate, long term debt with an average that has the remaining term of more than 13 years. In the year of 2010 the company has the debt maturities of $ 200 million whereas; in 2011 the increase is expected to raise more than double; around $ 500 million. In 2009, EnCana had $ 4.9 billion as unused committed credit facilities. Thus, it shows that the company’s liquidity position is extremely strong (OilVoice, 2010). This shows that during the period of low prices, EnCana remained focused on capital discipline and has created long term value for their shares. 1. References AWS Pacific limited, 2011 Encana Committed to Responsible Development. Accessed on 3rd November 2011 from http://www.connexpro.org/news/132-encana-committed-to-responsible-development.html Encana, 2011. Encana Corporation. Accessed on 3rd November 2011 from http://www.scribd.com/doc/58241393/Encana-Final First Energy Capital, 2010. EnCana Corporation-ECA $ 30.84. Bloomberg Business week, 2011. Canadian Pacific Limited. Accessed on 3rd November 2011 from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=258534 Andy.H, 2002. On their Own: Since the Breakup of Canadian Pacific, the Baby CPs have taken some giant steps. Accessed on 3rd November 2011 from http://business.highbeam.com/5274/article-1G1-90251714/their-own-since-breakup-canadian-pacific-baby-cps-have Stock house, 2008. EnCana’s CEO on the Spot. Accessed on 3rd November 2011 from http://www.stockhouse.com/ViewDetailedPost.aspx?p=84589 Oilvoice, 2010. Encana Set to Double Production in Five Years. Accessed on 3rd November 2011 from http://www.oilvoice.com/n/Encana_Set_to_Double_Production_in_Five_Years/ecd4ed2e0.aspx Oil Voices, 2010. Encana Genetrates Second Quarter Cash Flow of Us$ 1.2 Billion. Accessed on 3rd November 2011 from http://www.oilvoice.com/n/Encana_Generates_Second_Quarter_Cash_Flow_of_US12_billion/86b63b299.aspx Encana Natural gas, 2011. New release. Accessed on 3rd November 2011 from http://www.encana.com/news/newsreleases/2010/ Encase Natural Gas, 2010. Encana generates third quarter cash flow of US $ 1.1 billion or $ 1.54 per share. Accessed on 3rd November 2011 from http://www.encana.com/news/newsreleases/2010/ Manda.S, Maldar. J. N, 2005. North America’s Largest Independent Oil and Gas Company, Encana: Building Competitive Advantage through ‘Unconventional Means’ Accessed on 3rd November 2011 from http://www.ibscdc.org/Case_Studies/Strategy/Core%20Competency%20and%20Competitive%20Advantage/CCA0015.htm Patch work,2011. EnCana Reshaping North America’s Energy Portfolio. Accessed on 3rd November 2011 from http://www.edmontonsun.com/2011/10/24/encana-reshaping-north-americas-energy-portfolio EnCana Corporation, 2008. Success Belongs to Those Who See the Future Before It Becomes Obvious. Accessed on 3rd November 2011 from http://www.encana.com/investors/financial/annualreports/2008/pdfs/annual-report-2008.pdf Read More