Canada can control oil destiny: Morgan

Heft makes companies predators, not prey

By DAVE EBNER
Globe and Mail
Friday, October 28, 2005

CALGARY -- Canadian oil and natural gas companies are big enough and strong enough to fend off advances by potential international suitors, the outgoing chief of Canada's largest energy company says.

Gwyn Morgan -- speaking yesterday in his EnCana Corp. office on the 18th floor of Bankers Hall in Calgary -- said his company has reached a size where it doesn't need to fret about being someone else's dinner.

"If you're one of the strongest and fastest, you're not at the back, you're not going to be taken out by those that are chasing you, in the Darwinian sense," Mr. Morgan said.

Mr. Morgan made his point -- which is shared by Murray Edwards of Canadian Natural Resources Ltd. -- during his first extensive interview since announcing on Tuesday that he is stepping down as chief executive officer of EnCana.

Speculation about the future of Canadian oil and gas companies hit the headlines this month, reaching a particularly fevered pitch last week as investors pushed stock of EnCana up almost 10 per cent in a single day on rumours of a bid from Royal Dutch Shell PLC.

EnCana has said there was no bid, no suggestion of a bid and no talks about a bid.

Shell yesterday reported its quarterly results.

Shell's chief financial officer said on a conference call that that it would be difficult to justify a "very large acquisition" to investors given high prices in the market.

Deals of less than $10-billion (U.S.) would be more sensible, the CFO said. EnCana's market capitalization is more than $40-billion.

Mr. Edwards, vice-chairman of Canadian Natural, the No. 2 player behind EnCana, said he is "skeptical" about the potential for foreign takeovers and added that Calgary companies are just as capable of buying their international peers.

"Canadian companies have got to a size where they're as much acquirers as acquirees, in terms of critical mass," Mr. Edwards said in a Tuesday interview.

In May, rumours swirled around that Talisman Energy Inc., Canada's No. 3 independent explorer, was going to be bought by France's Total SA, chatter that pushed Talisman stock higher.

Mr. Edwards said the world's biggest public energy companies simply might not be interested in Canadian firms.

That's because some assets owned by domestic players were acquired in sales by supermajors like BP PLC. Talisman owns former BP assets, for instance, and in 1999 Canadian Natural acquired its Horizon oil sands lease from BP as part of a $1.1-billion (Canadian) purchase of oil properties in Alberta.

"A lot of these assets were acquired over time through rationalization by other people," Mr. Edwards said. "I'd be skeptical if guys wanted to go back" to buy back what they sold.

In January, 2002, Mr. Morgan unveiled a made-in-Canada merger to create EnCana by bringing together his Alberta Energy Co. with PanCanadian Petroleum.

"When the opportunity came to bring the two companies together, I knew and David [O'Brien of PanCanadian] knew that we could create something that was so much stronger and would most likely be able to maintain its independence for a long time to come," Mr. Morgan said.

Because of this, there is no pressing need to bulk up today, Mr. Morgan said, especially if it's only to get bigger rather than better.

"To do that would be a very short-term, foolish thing to do. Unless you can merge assets that are complementary, you're going to lose," Mr. Morgan said.

Talisman CEO Jim Buckee said his company has assets that are attractive to supermajors, but added Talisman is strongest as a whole, and that selling parts are not part of the plan.

"I know they like the Southeast Asia assets and they like [Canadian] Foothills very much. But having said that, I couldn't answer for what the majors are going to do," Mr. Buckee, a onetime BP executive, said in an interview last week after his company announced a $2.5-billion takeover of North Sea oil producer Paladin Resources PLC.

Mr. Morgan is being replaced as EnCana CEO on Jan. 1 by Randy Eresman, currently the company's chief operating officer. Mr. Morgan said Mr. Eresman was the obvious choice.

"Randy's consistently been No. 1 on the depth chart," Mr. Morgan said. "Since that was well known by the board and well accepted and supported by the board, we didn't have to have a long discussion when I told them what my plans are because [the succession] was something that was a natural evolution."

Canadians stand tall

Leaders of Canada's two biggest oil and natural gas companies say homegrown firms are not likely to be picked off by larger international players, suggesting in fact, that Calgary based explorers could just as easily be the acquirers, not acquirees.

The Canadian and U.S. independents ($U.S.)
EnCana Corp. $41 billion
Devon Energy $29 billion
Burlington Resources $27 billion
Canadian Natural Resources $22 billion
Anadarko Petroleum $21 billion
Talisman Energy $16 billion

The supermajors ($U.S.)
BP PLC $244 billion
Exxon Mobil $358 billion
Royal Dutch Shell PLC $209 billion

Total - NYSE $158 billion