EnCana Plans Investment Cut in Alberta if New Royalty Laws Adopted
EnCana 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.
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