EnCana, the largest independent producer of natural gas in North America, posted healthy profits in the fourth quarter as its average gas price rose 42 per cent to $5.11 per thousand cubic feet.
Chief executive Gwyn Morgan danced away from questions about what the company intends to do after reducing debt by $3.4 billion through asset sales in less than a year.
“We have no need for acquisitions, given our strong internal growth,” he said during a conference call.
“I don’t consider that we have a war chest, I consider that we just happen to have the strongest balance sheet in the sector.”
Some analysts consider EnCana “under-leveraged,” meaning its debt is too low and the company isn’t being aggressive enough in growing its assets and financial results. Considering the number of corporate trophies mounted on Morgan’s wall from his numerous hunting forays in the oilpatch over the past five years, EnCana won’t stay under-leveraged for long.
Last week’s federal budget proved the admonition about being careful for what you wish.
The petroleum and mining industries complained bitterly for years that tax changes in the 2000 budget hindered them in competing for capital compared with other sectors.
Federal politicians and civil servants granted their wish in the recent budget, but it came at a high cost. Ottawa agreed to reduce slowly its tax bite to 21 per cent from 28 per cent, a lengthy process that for years will leave natural resource companies at a slight disadvantage to other firms because the latter will reach the lower level first.
In addition, the federal government said it is going to wipe out a decades-old tax allowance that enables petroleum and mining companies to deduct the cost of provincial royalties as an expense.
“Our sector will be worse off at the end of the day,” said a vice-president with the Canadian Mining Association.
The devil is in the details, but it looks as if petroleum and mining companies were stuck in the derriere by a pitchfork from Ottawa.
The National Energy Board has again turned down an attempt by TransCanada PipeLines to change the method of determining its regulated return on pipeline investments.
The decision was not a big surprise as not much has changed in the eight months since the federal regulator initially rejected TransCanada’s proposal.
Gas producers will be happy with the NEB, as they argued the requested change would have increased their costs by $275 million per year.
Investors in TransCanada received better news with the announcement the firm has agreed to provide $70 million to northern natives in return for the right to build the Mackenzie Valley pipeline.
The money will be used by the Aboriginal Pipeline Group (APG) to fund its one-third share of project definition costs.
If the tentative deal between APG and TransCanada is accepted by petroleum producers that are driving the proposed pipeline, an application will be filed later this year with the NEB.
The producers have been waiting for months for the APG to get its financing arranged so that the long and complex review process can begin.
Higher gas prices and a pipeline that seems closer to reality help explain why drilling activity has exploded in the North.
A recent survey by the Canadian Association of Oilwell Drilling Contractors found 14 rigs working in the Northwest Territories, up from five a year earlier.
So what were the 0.12 per cent of shareholders thinking?
Fording shareholders voted last week 99.88 per cent in favour of a complex deal to combine assets from Fording, Sherritt International, Ontario Teachers’ Pension Plan, Teck-Cominco, CONSOL Energy and Westshore Terminals.
The deal created Fording Canadian Coal Trust, which will account for about 20 per cent of global output of metallurgical coal (used in steelmaking). Shares of the new trust will begin trading this week in New York and Toronto.
Fording’s reincarnation as an income trust comes at a time of more scrutiny of the specialty vehicles. In the four months since Standard & Poor created an index on the Toronto Stock Exchange to track income trusts, the group gained just over five per cent. The figure doesn’t sound bad until compared against TSE’s composite index, which rose 10.5 per cent over the same period.
For Fording to flourish, the new management has to deliver on promises of healthy cash distributions to investors. It will not be an easy task as the global economy wobbles over uncertainty about the impacts of a war on Iraq.
