Encana Corp. is searching for a permanent CEO after Randy Eresman, who had spent his entire career at the Calgary company, suddenly resigned earlier this month. Director Clayton H. Woitas, who is CEO of privately held Range Royalty Management Ltd., remains interim president and CEO until a successor is named.

No reasons have been made public about why Eresman left so abruptly. He agreed to stay on as an adviser until Feb. 28.

“I have had a wonderful and fulfilling 35 year career with Encana and its predecessor, Alberta Energy Co. Ltd. (AEC), which began as a summer student in 1978,” Eresman said. “I have been very fortunate to have worked with so many great people over those years. Together, we created and captured many opportunities and together we also overcame many challenges.”

Eresman, who had been COO when Encana was formed, took the helm in late 2005 (see NGI, Oct. 31, 2005).

Woitas, 63, brings more than 30 years of experience in Western Canada’s oil and natural gas business, having provided senior leadership at Range Royalty, Profico Energy Management Ltd. and Renaissance Energy Ltd. Calgary-based Range Royalty, which Woitas has led since 2006, earns royalty income from its oil and gas interests. The company has gross overriding royalty stakes on about 2.7 million acres of land and it also owns close to 140,000 acres of freehold title acres.

Woitas also is a director for Enerplus Corp., NuVista Energy Ltd. and Gibson Energy Inc. He founded and was chairman and CEO of privately held gas explorer Profico from January 2000 until June 2006 when it was acquired by Focus Energy Trust. Woitas served as a director of Focus until its acquisition by Enerplus in February 2008.

Eresman, a University of Wyoming petroleum engineering graduate, joined AEC in 1980 and is credited with Encana’s push into North American unconventional gas fields, propelling the company into the front of the pack with innovative drilling techniques that included multi-pad drilling. One of Encana’s biggest deals during Eresman’s tenure was in October 2008 when the company spun off its integrated oil assets to create Cenovus Energy Inc. (see NGI, Oct. 27, 2008). However, the makeover as a pure-play gas producer came at an inopportune time.

U.S. gas was trading at around $4.55/Mcf when the Cenovus transaction was being completed; futures indicated that prices would rise above $7.00 in 2013. (Encana’s strategy wasn’t considered too risky at the time; ExxonMobil Corp. was acquiring gas-directed XTO Energy.) However, gas now is trading at around $3.40/Mcf and futures indicate $7.00 prices after 2020. Encana’s stock value has fallen by almost one-third since the spinoff, and over the past year it has sold a substantial portion of its gassy assets and participation in joint ventures (JV), similar to what gas-prone Chesapeake Energy Corp. has attempted to do.

The independent has been transitioning slowly to more oily and liquids production since the continued stagnation in gas prices, a position that Eresman has long argued is not sustainable. Still, the company reported a $1.24 billion net loss in the third quarter, primarily from the impact of low gas prices.

“After a highly successful 2012, Encana is once again financially and operationally very strong, and well positioned to execute on its plans to rapidly transition to a more balanced commodity portfolio,” said Eresman. “Now is the right time for me to step down and to turn over leadership of Encana to someone with the focus, drive and commitment to complete the transition.”

There are no plans to roll out new strategies or change what is ongoing at Encana until a successor is named, said a spokesman. “It wouldn’t happen at all until a…[permanent] CEO is in place.”

CIBC World Markets analyst Andrew Potter said in a note the “timing and abruptness of the announcement was a surprise, but the fact that Eresman has left was not a big shock given the weak share price performance in recent years.” Investors should view the change as a “slight positive,” but he criticized the company for not having a new CEO in place to take over. “In our view it is very surprising that a company of this size and stature did not have an internal replacement suitable to step into the CEO role…

“What is more surprising is that this is the third such occasion in the large cap Canadian space in the past 12 months (Nexen, Talisman and now Encana), raising some very real questions about board effectiveness in the large cap Canadian sector,” Potter said. Nexen Inc.’s former CEO Marvin Romanow resigned a year ago; Talisman Energy Inc.’s John Manzoni resigned in September.

Bank of America Merrill Lynch analyst Peter Ogden said investors should be expected to have been “caught off-balance by this surprise announcement” following positive news in recent weeks, including a successful JV agreement in the Duvernay Shale, and the sale of its stake in one of British Columbia’s proposed liquefied natural gas export facilities to Chevron Corp. “A new CEO will introduce some uncertainty going forward in our view but we don’t expect a big market response either way…”

Meanwhile, Canaccord Genuity’s Phil Skolnick and his team said Encana’s (ECA) stock should “rally on the news as the market will likely be of the belief that Encana will use this opportunity to sell itself. However, we reiterate our view that investors should not look at ECA as a potential acquisition play, unless it is a ‘made in Canada’ event, given ECA is a Canadian flagship company; Investment Canada is unlikely to see a net benefit in allowing ECA’s large royalty-free fee land position to fall under the hands of a foreign entity; and we believe the acquisition of ECA would be perceived as a risk of a Canadian industry coming under foreign control. Therefore, we would recommend investors use any large share price surge on takeover speculation as a profit-taking opportunity.”

Given the lack of an immediate promotion from Encana’s ranks, “we expect the board of directors to look for an outsider to fill the role and provide a fresh perspective given the company had painted itself into a corner by betting on North American natural gas and is struggling to now balance its portfolio, in our view,” said Skolnick. “Therefore, we believe this will give Encana a good excuse to make a transformational oil/liquids acquisition to accelerate the balancing of its portfolio.

“Risk is that such a venture could be dilutive to the stock, in our view, and another reason we would use any potential share price pop as a profit-taking opportunity. It is possible that Encana could look to then take a more conservative approach toward spending given its continual need to fill a funding gap with JVs and asset sales. This impact on growth, however, would be contingent upon any potential acquisition that could be made. Nevertheless, the company needs to first find a new CEO.”

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