Point of View:EnCana's Morgan: Focus, speed key to merger succes

April 21, 2003
Gwyn Morgan's stock-in-trade includes a time-tested formula for increasing assets and a deft management touch that has pulled off the biggest merger in the Canadian oil industry with an enterprise value of $30 billion (Can.).

Gwyn Morgan's stock-in-trade includes a time-tested formula for increasing assets and a deft management touch that has pulled off the biggest merger in the Canadian oil industry with an enterprise value of $30 billion (Can.).

Morgan is the president and CEO of EnCana Corp., Calgary, the largest independent operator in North America. The merged company was formed just over a year ago by the marriage of two of Canada's largest exploration and production firms: Alberta Energy Company Ltd. and PanCanadian Petroleum Ltd. (OGJ Online, Jan. 28, 2002).

As proof the merger is working, Morgan points to the success of efforts to build what he calls a best-in-class independent oil and gas company.

"In our inaugural year, we created the world's largest independent, surpassed the midpoint of our sales growth targets, replaced production by 190% on a proved basis, increased total conventional proved reserves by 10%, and refined our strategy to concentrate on premium growth, high return conventional exploration and production investments," he said.

The success of the merger is borne out by both financial and production results. EnCana earned $1.254 billion in 2002 with oil and gas sales averaging 723,000 boe/d, up 12% from the 2001 results of its legacy companies. Sales of natural gas averaged 2.8 bcfd, up 16% vs. 2001, and of crude oil and gas liquids, 263,000 b/d, up 5% over 2001.

Making merger work

Morgan says the essence of doing a merger is to know exactly what the objectives are, convey them to the organization, and move quickly to implement them.

"When you come at a merger, if you are in any way inhibited by the past, if you have any reservations on choosing the best people for the best job, if you have any historical issues on how you are going to organize the company, then you are automatically starting off with one hand tied behind your back," he said.

"Historically, the casualty rate in mergers is very high. One of the biggest [hurdles] is what they call social issues: You are trying to force fit people who are not suited to working with one another, or they are reluctant to change one set of practices for another."

Morgan says there was none of that in the merger that created EnCana. The bottom line is that the CEO has a philosophy that he clearly spells out to the organization and then implements. The EnCana merger was accomplished in about 68 days, from the announcement of plans to a shareholder vote. He says that in a merger it is important to get about 80% of the objectives right, do it fast, and don't drag out the process. He says EnCana, after a year, is refining the merger to 100%.

Company strategy

The EnCana CEO says the core of the company's philosophy on assets is sustainable growth, something he calls almost an oxymoron that doesn't happen often in the oil and gas industry. That, he says, involves continuously bringing in assets that you think you can build on and expand and assets where you have a significant competitive position over other companies, no matter where you operate.

"That is a formula that has been consistently applied. You don't buy someone else's decline curve, or the tired assets of companies you can't build and grow. The acquisitions done have been [properties] that are very young and many based on exploration in the field," Morgan said.

"That has been a constant discipline. You don't want to take on the company problems, you want to take on opportunities, and over time you end up with assets that meet your criteria," he added.

"Another principle is to have control of assets and to always sell any asset that is worth more to someone else than to us."

Oil sands efforts

That last principle was exercised when EnCana recently sold a 10% interest in the Syncrude Canada Ltd. Alberta oil sands consortium for about $1.07 billion with an option to sell another 3.75% for about $417 million (OGJ Online, Feb. 10, 2003).

The company will now focus on its Foster Creek and Christina Lake steam-assisted gravity drainage (SAGD) oil sands projects and develop estimated reserves of 30 billion bbl on EnCana lands. Morgan says EnCana has complete control of these SAGD projects and can make them the most cost-effective operations in the oil sands industry.

Foster Creek, the first commercial SAGD development, is now producing 20,000 b/d with a target of 30,000 b/d in 2004. The Christina Lake pilot project is producing about 3,300 b/d.

Morgan notes that "resource plays" are a major focus for EnCana. A leading example, he says, is oil sands, where the resource is unlimited and the challenge is technology.

Resource plays

Morgan says that when the companies merged they combined a number of resource plays in Alberta, British Columbia, and the US Rocky Mountain area. EnCana also has core growth areas in the Gulf of Mexico, the UK North Sea, and Ecuador.

"Our situation today is that probably 80% or more of our gas production comes from long-life, low-decline, huge resource-in-place plays," he said. "Over time, you drive down costs and extend infrastructure so that you end up with something like a manufacturing machine for gas."

The company also has new ventures exploration plays in regions such as Alaska, northern Canada, Australia, West Africa, and parts of the Middle East. It is hoped these plays will become long-term core areas.

In a February deal, EnCana signed an exploration and production-sharing agreement with Oman for two blocks with 2.8 million gross acres and 6.8 million gross acres, respectively. The company will acquire and reprocess seismic data and drill three wells over a 3-year term.

Lands access

Morgan says one of the biggest unresolved issues facing EnCana and the industry in North America is access to new exploration lands.

It is a bigger concern in the US, he says, where in the Lower 48 the accessible land has been fairly intensively drilled, but large tracts of land are closed to drilling.

"The problem is more acute in the US because it is such a huge importer of energy. The gas industry can only do its job if it has access to the areas it needs," Morgan said.

"This is the next major debate that is going to have to go on, a broad philosophical debate that has to occur. Do we want the energy industry to do its job for us? If the answer is yes, people have to think about ways of helping us make it happen rather than ways of making it difficult."

Morgan says a new way of thinking is needed, rather than an adversarial approach.

Career highlights

Gwyn Morgan is president and CEO of Calgary-based EnCana Corp. EnCana was formed in early 2002 by the merger of Alberta Energy Co. Ltd. (AEC) and PanCanadian Energy Corp. (OGJ Online, Jan. 28, 2002).

Employment

Prior to assuming his current position, Morgan served as president and CEO of AEC, a company that he joined when it was formed and went public in November 1975.

Education

Morgan holds a mechanical engineering degree from the University of Alberta. He completed a number of evening graduate-level reservoir engineering courses and later took the Executive Business Program at Cornell University.

Organizations

Morgan
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Morgan served as president of the Independent Petroleum Association of Canada, where he was involved in the negotiations to end the National Energy Program, which led to the 1985 "Western Accord" and the deregulation of oil and gas prices in Canada. At the same time the government of Alberta sold its remaining interest, and AEC became an entirely private independent company. Morgan also served for 2 years on Canada's Oil and Gas Conservation Board. He also serves as director and cochairman of the National Policy Committee of the Canadian Council of Chief Executives.