EnCana to split

NORVAL SCOTT

Globe and Mail Update

May 11, 2008 at 3:29 PM EDT

CALGARY — EnCana Corp., Canada's largest energy company, is to split itself in two, creating separate oil and natural gas-focused firms as it seeks to grow its businesses faster while securing the most value for its assets in Alberta's oil sands.

While EnCana is the largest producer of North American natural gas, the firm has long felt its share price hasn't fairly reflected the strength of its holdings in the oil sands, where the company has built up a significant position and expects to become a major producer as growth projects are completed.

Analysts have long suggested that EnCana could receive more value for those holdings by spinning them off into a separate company that's more focused and easier for investors to assess. EnCana itself has previously said it would consider such a move as and when its oil business was able to finance its future growth itself.

“Companies need to have disciplined focus on their expertise and core strengths in order to achieve full value from their assets, to capture opportunities and to effectively respond to changing markets,” said EnCana chief executive officer Randy Eresman in a press release.

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EnCana's chairman of the board, David O'Brien, smiles during the company's annual general meeting of shareholders in Toronto April 22. (REUTERS/ Mike Cassese)

EnCana Corp.

“With the creation of these two companies… they will be better equipped to direct their strategies and operations towards building value,” he said. “As well, with greater transparency and focus, the investment community will be able to more easily follow and more accurately assess and value [them].”

Through a court-approved plan of arrangement, EnCana, which has a market capitalization of $65-billion, will be split into two companies – IntergratedOilCo (IOCo) and GasCo.

IOCo will focus on the development of EnCana's oil sands and U.S. refinery holdings, although it will also retain control of some of EnCana's shallow gas fields.

The assets it will operate represent around one-third of EnCana's current oil and gas production and proved reserves, producing around 245,000 barrels of oil equivalent a day. It will employ 2,000 of EnCana's current work force of 5,500.

IOCo's current production from the oil sands is around 30,000 barrels of crude a day, but that is expected to increase by 110,000 b/d by 2012 as the company's Foster Creek and Christina Lake projects, being jointly developed with U.S. supermajor ConocoPhillips, comes on stream.

"IOCo's integrated oil sands assets are capable of achieving double-digit growth between now and 2016,” said EnCana Chief Financial Officer Brian Ferguson, who will take the reins of IOCo.

GasCo will concentrate on natural gas, EnCana's long-time focus, and retain the majority of the company's gas resource plays across North America. The company, whose assets currently produce 515,000 boe/d, will now target growth of between 7 and 9 per cent per year, an advance on EnCana's previous target for the company as a whole of 5 per cent.

GasCo is expected to retain the name EnCana Corp, while a new name for IOCo will be determined before the transaction closes in early 2009. Mr. Eresman will become the CEO of GasCo.

EnCana shareholders will receive one share in each of the two companies, with initial dividends from both expected to be initially equivalent to EnCana's current dividend.