Encana Corp., one of the biggest natural gas producers in North America, is taking a walk on the oily side in 2012, redirecting a substantial portion of its 2012 budget to more profitable liquids-rich plays, CEO Randy Eresman said on Thursday.

The company's 3Q2011 gas-weighted production jumped 6% year/year, putting it on track to achieve a targeted growth rate by year's end of 5-7%. And even though the dry gas plays are still affordable, the the CEO explained there's more green -- as in money -- in the wetter assets.

"Within the 2012 budget, it's expected that many of our drier natural gas plays will see a reduced capital program, while a growing portion of next year's capital investment will be directed towards our extensive oil and liquid-rich development and exploration opportunities. From our existing development plays, we expect increase natural gas liquids production by about 55,000 b/d, which will take the company's total liquids production from the current level of about 25,000 b/d to about 80,000 b/d by 2015.

"Beyond this, we're pursuing extensive additional organic growth through a continued exploration work across our portfolio of liquid-rich lands. So this is just the beginning of our expected liquids production growth. There will be more to come from other plays as we proceed through the year. But this is what we are prepared to forecast with confidence at this time."

The CEO said even with less capital directed to Encana's gassy assets, "I want to stress that even at the current strip prices, the full-cycle economics on many of these plays are still very economic. This is in part due to their inherent high quality, but also in part to the longer-term agreements we've established with our suppliers and service providers across Encana's operations and the continued implementation of our resource play hub development model, which has enabled us to offset cost increases with increased capital and operating efficiencies."

Since the start of this year Encana has been selling North American midstream properties. It also continues to attract new third-party investments to improve project returns and accelerate development. In July Encana expanded its Horn River farm-out agreement with a Canadian subsidiary of Korea Gas Corp. (Kogas) at Kiwigana in northeast British Columbia. Kogas agreed to invest another C$185 million in nearly 20,000 additional acres of the promising Horn River lands.

Still on the market are Barnett Shale properties in North Texas, assets in portions of the Jean Marie play in northeast British Columbia, and the Carrot Creek assets in Alberta's Deep Basin. In addition Encana continues to work to secure a joint venture partner for the Cutbank Ridge undeveloped assets in Canada after ending talks in June with a subsidiary of PetroChina International Ltd. (see Shale Daily, June 22).

"Although I won't comment on the specific deals until definitive agreements have been signed, I can tell you that the interest level is very high, indicative of the high quality of these assets," said Eresman. "These are all highly competitive processes. We expect to be in a position to provide more information by around year-end.

"The assets we typically consider for these types of joint ventures are plays where our future drilling inventories can be measured in decades. Once we fully delineated the resource and through implementation of a resource play hub processes, we can demonstrate a line of sight to the lowest cost structures that we think can be achieved from the assets. We then create optimal opportunity to accelerate the capture of value through joint venture arrangements.

"Third-party capital dollars invested in our assets in this way will accelerate the pace of development, and due to the disproportionate nature of the capital spent during their interest, the third-party dollar support our net growth, further lower our cost structures and improve our returns. Our teams have been very, very busy in this regard."

About a dozen wells are being drilled on five prospective liquids-rich and oil plays from Alberta to Mississippi: the Duvernay Shale in Alberta, the Niobrara formation in the Denver-Julesburg and Piceance basins in Colorado, the Collingwood Shale in Michigan and the Tuscaloosa Marine Shale in Louisiana and Mississippi.

Mike Graham, who runs Encana's Canadian operations, called the Duvernay the "hottest new play" on the market. Encana plans to spud three wells there before the end of the year.

"We hold about 365,000 net acres in what we believe to be some of the best liquid-rich acreage in the play," said Graham. "As I said before, it's still early days, but we are very excited about the potential of the Duvernay Shale to add significant liquid volumes to the production profile of the Canadian division. We expect to be even more active in this play next year but are finalizing the details through our budgeting process."

Encana U.S. chief Mike Wojahn credited the quarter's big production gains to success in the Haynesville Shale. Production there averaged 524 MMcfe/d in the latest quarter, up about 70% from a year earlier. By the end of this year plans are to have drilled 85 net wells; Encana has 11 operated rigs in the area with an additional nine operated by its partners.

"Our experience in developing resource plays has taught us that longer horizontal lateral lengths brings increased initial production rates, higher expected ultimate recoveries and improved supply costs," Wojahn said.