EnCana threatens $1B spending cut over Alberta royalty plan

The fight over Alberta's energy royalty review grew Friday as EnCana Corp. threatened to cut $1 billion from its 2008 investments if a controversial report is adopted.

The company said it will cut 30 to 40 per cent of the $2.5 billion to $3 billion it plans to spend next year on Alberta-based activity.

EnCana said most of the cuts would be to its natural gas activity in areas of the province where the company says the proposed royalty plan would make them "uneconomic or uncompetitive."

The company said it would move its capital out of the province.

A panel appointed by theAlberta governmentreleased a report last week that said Albertans are not getting their fair share of energy revenues and recommended raising royalty rates by 20 per cent, or $2 billion a year.

Oil and gas companies lashed out at the suggestion, saying an increase would hurt the province's investment and growth potential.

"Even without that future gas production growth, under the recommended changes EnCana's royalties on Crown lands would effectively double, assuming current gas prices," said EnCana president and CEO Randy Eresman.

"We will have no choice but to slow down our Alberta-based activity and move investments to other areas in Canada and the U.S. that are more economically attractive. As a further consequence, Alberta natural gas production will continue to fall.

"We do not want this to happen. This does not need to happen. The consequences would be far reaching," he added.

Eresman said his company is open to changes to Alberta's royalties, but he said the changes should reflect the volatility of commodity prices, higher costs and the risks and returns of capital investments.

"A royalty system can be developed that achieves Alberta's objectives without so severely damaging the province's future," Eresman said.

Shares of EnCana rose 17 cents to close at $61.50 on the TSX.