Canada’s beleaguered energy sector suffered another morale blow as Encana Corp. — one of its marquee companies that was born out of the 19th-century railway boom — announced plans to move its headquarters to the U.S. and drop the link to Canada from its name.
The Calgary-based company said Thursday that it will establish a corporate domicile in the U.S. early next year, pending various approvals, and rebrand under the name Ovintiv Inc.
The shares fell as much as 9.2 per cent in Toronto.
The move is likely to intensify the gloom already hanging over the Canadian energy industry, which has suffered from a lack of pipeline space that has choked off prospects for growth, prompting foreign companies to ditch more than US$30 billion of assets in the past three years. Encana joins pipeline owner TransCanada Corp., which changed its name to TC Energy Corp. earlier this year.
For Encana, the move is a logical shift since Doug Suttles, a Texan, took over as chief executive officer in 2013. Suttles soon set about selling Canadian assets and building a major position in the U.S. through the purchase of Permian driller Athlon Energy and the acquisition of Freeport-McMoRan Inc.’s Eagle Ford shale assets. The company moved into the Scoop and Stack shale fields in Oklahoma, the Bakken region of North Dakota and the Uinta play in Utah with its purchase of Newfield Exploration, which closed in February.
In March of last year, Suttles moved to Denver and said in November that he envisioned Encana as a “headquarterless” company. Last quarter, he lamented on the company’s earnings conference call that Encana shares hadn’t yet achieved the valuation worthy of a “premium” exploration and development company.
“A domicile in the United States will expose our company to increasingly larger pools of investment in U.S. index funds and passively managed accounts, as well as better align us with our U.S. peers,” Suttles said in a statement Thursday.
As part of the corporate shift, shareholders will get one common share of Ovintiv for every five shares of Encana. The move needs the support of two-thirds of votes cast at a shareholders meeting early next year.
Encana traces its Canadian roots back to the late 1800s, when the Canadian Pacific Railway accidentally discovered natural gas while drilling a water well for workers. The company was eventually spun out from Canadian Pacific and took the name EnCana in 2002. Encana then spun off its oilsands business into Cenovus Energy Inc. in 2009.
Both stocks have underperformed since then, with Encana down 78 per cent including dividends, while Cenovus has dropped 48 per cent. Canada’s benchmark stock gauge has doubled in the same period.
Separately, Encana reported third-quarter adjusted operating earnings that were in line with estimates. The company raised its 2019 production outlook while maintaining its capital spending guidance, and said Permian output rose to a quarterly record while Anadarko production climbed 13 per cent from a year earlier.