Encana Business Evaluation
By helping to grow the North American economy, Enhance helps build sustainable communities (Enhance, 2011). They have the land, the resources, the people, technology, culture and financial strength to win the changing natural gas game. We determine change by recognizing that energy production is shifting to ‘green’ alternatives, thus contributing to a downturn in profits for must of the energy industry. Encases operations also include the transportation and marketing of crude IL, natural gas, and natural gas liquids; as well as the refining of crude oil and the marketing of refined petroleum products.
Enhance Corporation was formed in 2002 by the merger of Pan Canadian Energy and Alberta Energy (Anonymous, 2009). It is Canada’s largest natural gas producer and the second largest such producer on the continent. The company came together under the guidance of Gwynne Morgan and David O’Brien. Their original vision was to create a Canadian-based, flagship company that would successfully compete in the international oil and gas business (Anonymous, 2009). Pan Canadian Energy was a member of the Canadian Pacific group of companies and administered large collections of mineral rights and natural gas (Anonymous, 2009).
Enhance has since focused its interests on two unconventional energy resources: Tight gas reservoirs
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Enhance performs in-situ extraction using steam-assisted gravity drainage for production purposes in this sector (Anonymous, 2009). Last October, Enhance unveiled plans for a new 58-storey office headquarters building project in downtown Calgary, calling it The Bow building. This building project, which is owned and is being developed by H&R Reid, a real estate trust, would become Canada’s second largest office building (Anonymous, 2009). In December 2009 Enhance split into two firms, forming the new Enhance which is a pure play natural gas many and integrated oil company Census Energy (Ghanaian & Abraham, 2011).
Current Competitive Analysis: Industry Analysis Enhance is one of North America’s biggest energy companies and are set apart from the other companies for a number of reasons. Enhance focuses on separating themselves from the competition by going above and beyond the industries standards. Enhance has a low cost focus which makes them among the lowest cost structures in the natural gas industry, thus Enhance is “full of opportunity with the reserves and their economic contingent base. ” (Hookah, 2011) .
Enhance also established a disciplined approach to capital spending, financial stewardship and environmental and corporate responsibility. Enhance is always searching for alternatives to increase their operational efficiencies, to reduce their environmental impact, and to lower their energy use while at the same time trying to increase production (Rescan, 2009). Enhance also puts priority to the safety of their workers. Their goal is to reduce health and workplace risks for everyone. This sets them apart from other companies in the industry who prioritize profits margins and competitive growth structures.
Enhance truly believes in the importance of new technologies to make their company more efficient and effective and lowering cost structures in order to maximize margins (Rescan, 2009). In 2010, Encases President and CEO Randy Rescan stated, “Our teams achieved superior performance by efficiently delivering double-digit production and significant reserves growth. We reduced our operating costs and cash flow targets, achieved solid operating and financial results in this challenging environment which saw prices at unsustainable low levels, illustrating our continued structures. ” (Business Wire, 2011).
Analysis of Competitors Supply and Demand for consumption gas and fuel, and the profitability of refineries depends on efficient operations. Although there are significant economies of scale in refinery operations, effective competition with larger corporations occurs within (1) favorable markets and (2) production of specialty products in high demand (Hoovers, 2011). It is arguable that major oil companies like Exxon Mobil and BP are too large and diverse to fairly be called “competition”. Therefore, among Encases top independent competitors according to an analysis done by D&B Company are
Chesapeake Energy Corporation, Talisman Energy Inc. And Apache Corporation. Chesapeake Energy Corporation is a natural gas production company with projects in Arkansas, Kansas, Louisiana, New Mexico, Oklahoma, and Texas involving the acquisition and development of conventional and unconventional natural gas reserves, on and offshore; and employing 62,00 people. The company recorded revenues of $7,800 million in the fiscal year ended December 2007, an increase of 6. 5% over 2006. The company’s operating profit was $2,649 million in fiscal year 2007, a decrease of 22. % compared to 2006 (Data Monitor, 2008). Talisman Energy Inc. Canadian independent oil and gas exploration and production company is active in North and South America, Southeast Asia, and the North Sea. Talisman introduced a new strategy in 2009, which focuses on developing key growth properties, such as unconventional gas assets in North America, supported by gas developments in Southeast Asia. In 2009 Talisman invested $1. 4 billion in developing its shale assets in North America. In 2010, they reported a Net Income of CNN$648 million, an increase over the 2009 fiscal year (Talisman, 2011).
Apache is an oil and gas exploration and production company with onshore and offshore operations in North America and in Argentina, Australia, Egypt, and the UK (offshore in the North Sea). Apaches strategy is a unique one; the company buys up “mature” properties from oil majors and then extracts more from them, taking advantage of the high price level to keep margins up despite the use of expensive technology. In 2009, Apache reported a Net Income of CNN$8,615 million, a 30% decrease in revenue from the previous accounting year (Apache, 2011).
Business Level Strategy Enhance draws its resource nationally and abroad from British Columbia to Texas and Louisiana. They are committed to provide output while keeping costs low through efficiency and encouragement of technological advances. During all this Enhance “Enhance is committed to the key business objectives of maintaining financial strength, optimizing capital investments and continuing to pay a stable dividend to shareholders attained through a disciplined approach to capital spending, a flexible investment program and financial stewardship. (Anonymous, 2009) Corporate Level Strategy Enhance corporate-level strategy strives to please all of its key stakeholders. Its main corporate strategy is to fare well in the unpredictable market. They want to continue investing in the company in order to encourage and fund long-term growth. It looks to double the production per share over the next five years. They have stated: “Enhance is focused on sustainable, high-growth natural gas plays in major North American basins. Enhance has a history of entering resource plays early and leveraging technology to unlock resources.
With the Company s significant portfolio of natural gas resources, Enhance has the capacity for substantial production growth” (Anonymous, 2009). Competitive Position Enhance has a diverse portfolio of international holdings; with over 12 trillion cubic et of natural gas and 1. 1 billion barrels of oil in its reserves (most of which are proven), a large part of its production is derived in North America. The spikes in oil and gas prices have been highly beneficial to the company, as they raise profitability in an otherwise commodity-like market.
These high oil prices lead to increased production, and as the supply of oil and gas increases, as determinant by economic structures prices will eventually fall. Enhance is also greatly affected by the Canadian-U. S. Dollar exchange rate. Furthermore, the Government of Alberta recently raised royalties on operations in the Alberta oil sands, making the company’s operations in the region less profitable. For Enhance, Oil and Gas Prices determine profitability; and although subject to heavy fluctuation since the economic downturn of the past few years, the most recent trend is a return to rising prices.
Because oil and gas are both non-renewable forms of energy, slowing discoveries of new sources combined with increasing pricing has led to speculation that production is approaching peak oil quantities. Whether this is true or not, oil and gas are commodities: one company’s gas can only be differentiated from another company’s f the current market will drive increased exploration and production, which could eventually cause prices to fall and margins to drop (Gandhi and Abraham, 2010). Though many of Encases expenditures occur in Canadian currency, the worldwide price of oil is recorded in U.
S. Dollars. If the Canadian dollar appreciates relative to the U. S. Dollar, the value of the oil that is extracted in Canada would decline. Furthermore, Encases long-term debt is held in U. S. Dollars; thus, the depreciation of the U. S. Dollar hurts the company in the short term and the appreciation of the U. S. Alular hurts the company in the long term (Ghanaian and Abraham, 2010). Coming to the real market of these giant companies, Encases stock value opened at CNN$33. 80 on 28, March 2011; compared to its competitors, Apache (IIS$125. 8), Talisman (CNN$23. 75) and Chesapeake (US$34. 38) (Globe and Mail, 2011). See Appendix C for Figures. 5-year Business Environment Projection “In five years, Enhance will be an even more focused natural gas and in-situ oil sands resource company. More than 80 percent of our production will come from resource plays, our decline rate will be among the lowest in the industry and our sales growth re share will be among the highest. There will be clear, long-term potential for the company to continue to add value over time.
Enhance will continue to high grade its portfolio to be more focused on our key resource plays where we can provide more profitable growth for our shareholders,” (Rescan, 2004). Legal and Regulatory Environment for Enhance In order to be law-abiding business administrators, we must negotiate a vast web of constitutional, federal, regulatory, criminal, civil, common, substantive and procedural, public and private; business, contract, product-liability, patent, nonuser-protection, environmental, employment and labor, insurance, cybercafé, agency, and a host of other forms of law.
In fact, being a truly law-abiding corporation is virtually out of the question. According to one estimate, the average American driver deserves ten speeding tickets a day (Sexton, 2008). The legal and regulatory environment plays an important role in the success of innovation based economic development (Anonymous, 2011). Charges that Enhance breached the Canada Wildlife Act were filed in 2007 by the Public Prosecution Service in response to Trotter’s documentation of the construction of three hundred meters f gas pipeline in the NNW sometime prior to April 2005 (McClain, 2011).
After the announcement of the charges in 2007, Enhance spokesperson Alan Boras told the News, “The pipeline was inadvertently and unknowingly placed within the wildlife It is issues such as the ignorance of environmental law that can prove costly for corporations. Regulations and restrictions incorporating environmental policies are growing at an alarming rate in recent years, a trend that is expected to continue. That being said, Enhance needs to prove due diligence is responding, recognizing and adhering to future legal and regulatory initiatives, given that the gas and oil industry is commonly concern at the forefront of regulatory issues.
In an increasing attempt to ‘go green’, Enhance must continue to invest in its Research and Development practices and their search for conscious and safe energy resource procurement. Economic Projection of Enhance Enhance should be concentrating on maximizing margins and delivering value to its shareholders on a per share basis through low cost structures and maximizing their scales of efficiencies (Hookah, 2001). The corporation has stated that they are firmly omitted to pursuing aggressive and organic growth, driving down their costs and applying strict capital growth whereby maintaining flexible growth and financial stability (Rescan, 2010).
The emergence of shale gas plays a role in the changing game of oil and gas reserves along the reduction of surface disturbance in this extraction process. Following the 2008 recession, as the market stabilizes, Enhance maintains that they hold sufficient inventory to double their production in the next five years, meeting the increasing consumer demand (News Release, 2010). Technology Projection for Enhance Technology is so important in improving efficiency, and new technology is being created every day become more environmentally friendly. Enhance understands the importance of finding new technologies to leave a lighter “carbon footprint”.
Encases competitors are advancing with new technologies, seeing the future competitive market potential of solar and wind power. Solar power has zero carbon and greenhouse gas emissions which means there is absolutely no water or air pollution. “Wind energy uses the energy in the wind for practical purposes like generating electricity, charging batteries, pumping water, or grinding grain. Large, modern wind turbines operate together in wind farms to produce electricity for utilities. Small turbines are used by homeowners and remote villages to help meet energy needs. ” (Anonymous. 010) These new technologies look like they will be great competition to natural gas companies like Enhance. The challenge is then for Enhance to match their efforts with new innovative strategy as well. Even though Enhance is focused on reducing their emissions, natural gas still produces harmful emissions; so, it is important for Enhance to develop new technologies that will enable them to continue to compete in he future Enhance is focused on areas of key competitive advantage. Conventional North American gas fields have been on a high-decline, with high-replacement-costs.
In contrast, Enhance has built an asset base focused on unconventional properties? characterized by gas-charged sandstones, silts and coals, with much higher production life than conventional reservoirs (Morgan, 2003). Encases technical and operating teams have grown up in a company principally focused on resource plays, whereas the main focus of the vast majority of the industry has been on the search for new conventional fields (Morgan, 2004). Encases 2004 sales growth target rose from 10% to 15% by mid-2004, with quarterly profits that topped $1 billion for the first and second quarters of 2004 Gang, 2004). With about 16 million net acres, 12. 4 trillion cubic feet equivalent of proved gas reserves and 3 billion cubic feet per day of natural gas production, Enhance (Sagas) is expected to retain its standing as a leading North American natural gas producer with strong growth potential,” (Rescan, 2009). Social and Global Factors for Enhance Encases new global plans are to move to other continents and begin extracting oil. Since Enhance plans to move to other parts of the world; that might mean a loss of jobs. Encases global domain also includes Joining with Petrol China. Enhance, 2009) With this new Joint venture Enhance will be able to develop at a faster rate (Enhance, 2009). The future however is hard to predict. Again, new technologies like wind and solar power do not have any negative emissions to the ozone so these types of technologies are being recognized as safer alternatives to natural gas. Given that natural gas is having a negative impact on people’s lives many have sought alternative means of energy resource, as evident in the increasing production and sales of fuel efficient vehicles.