Encana cutbacks leave Piceance status in question

Encana today announced a 20 percent corporate-wide workforce reduction and other cuts, a move that left unclear what the future holds for its Parachute office and Piceance Basin operations.

“It’s just kind of stay tuned at this point,” said Doug Hock, a spokesman at the company’s Denver office.

The company, based in Calgary, Canada, said today Encana also will slash its stock dividend, close its office in Plano, Texas, spin off many of its Alberta assets into a new company, and focus on five resource areas, among them the Denver-Julesburg Basin in Colorado and the San Juan Basin in New Mexico, the Associated Press reported.

“Those are plays where there is primarily oil and liquids and that’s why those are the focus,” Hock said.

However, he noted that the company planned to continue investing 25 percent of its capital spending on other assets.

He said there have been no announcements of layoffs at the Parachute office, where about 190 people — mostly employees but some contractors — worked as of Sept. 30. Other contractors also work in the field.

“We’ll kind of just wait and see at this point but there will be more clarity here within the next few weeks,” Hock said.

Encana’s Piceance Basin operations are focused on natural gas production. But one saving grace may be its 20-year joint venture with steel maker Nucor. Announced about a year ago, the deal could provide for Encana to drill more than 4,000 wells over 20 years. It involves a 50,000-acre federal leasing unit straddling Garfield and Rio Blanco counties and helps protect Nucor as a natural gas consumer against possible rising gas prices by being invested in gas production. For Encana, it provides for someone else to share in the costs of production.

Hock noted that Encana president and chief executive officer Doug Suttles mentioned in a media conference call today that the company had joint venture obligations it had to honor.

The Nucor drilling obligation is not ironclad, however. It allows either party to suspend drilling if natural gas prices fall below a certain threshold.

Gas prices have been depressed since 2008 thanks in part to increased domestic production, causing many energy companies to focus more on development of oil and other liquid hydrocarbons. In the Piceance, it has left Encana and WPX Energy as the two only significant operators, with most other companies having suspended drilling or doing a minimal amount.

Encana is currently operating four to five rigs in the Piceance Basin, a level that Hock said has held steady for the past few years. It has more than 3,000 Piceance wells that average 456 million cubic feet of production per day.


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