Plans for Piceance unclear as Encana announces work-force cuts

Encana on Tuesday announced it plans to make 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 Encana also will reduce its stock dividend by more than half, close its office in Plano, Texas, spin off certain 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.

“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 next year’s capital spending on other assets.

Encana also indicated it plans to sell off some nonstrategic assets that it didn’t identify Tuesday, but said it wants to retain “significant high-quality natural gas resource options.”

Hock 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, Hock indicated. Announced about a year ago, the deal provides for Encana to possibly 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 against possible rising gas prices as a consumer because it’s also 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 conference call Tuesday 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, that has left Encana and WPX Energy as the only two 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 averaged 456 million cubic feet of production per day as of Sept. 30.

Some of the Texas jobs are to be moved to Encana’s Denver office, but Hock said how many people will end up employed in Denver remains up in the air because of other possible cutbacks. The Denver office employed 728 workers and contractors as of Sept. 30. Encana last month said the Denver office would no longer serve as Encana’s U.S. headquarters but would remain open.


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