Using the experience it gained in the unconventional gas fields of the Piceance Basin in Colorado, and the Montney and Horn River shale plays in British Columbia, Encana Corp. has begun to advance its "gas factory" approach in the Haynesville Shale, where it holds more than 430,000 net acres spread across Louisiana and East Texas.

The Calgary-based producer said Wednesday it now has eight rigs drilling on three gas factory locations in the Haynesville play, which it touts as a low-cost manufacturing approach that lowers the environmental impact and optimizes production. The scheme enables Encana to drill eight "and potentially more" horizontal wells, each containing multiple hydraulic fractures, from a single pad location.

A lot of time and money was spent in 3Q2010 to retain Encana's extensive leasehold in the Haynesville. USA Division capital spending in 3Q2010 totaled $681 million, with close to $240 million of that directed at retaining land in the shale play.

Despite the output gains, Encana is throttling back and through the rest of this year production and spending has been trimmed.

"North America's ongoing oversupply of natural gas production has driven prices for the near term to levels that we believe are unsustainably low," said Eresman. "As such, we are slowing the near-term growth rate of our resource plays.

"For the longer term, we continue to build the underlying productive capacity of our enormous resource portfolio for future years' growth. Our low-cost assets are capable of achieving our stated objective: doubling production per share over five years from 2009 levels. However, if these low prices persist, we plan to adjust our growth rate to align with our capacity to generate cash flow."

Quarterly gas production, all onshore, jumped 17% year/year (y/y) to 3.2 Bcf/d; total output was up 15% to 3.3 Bcfe/d. The USA Division's quarterly output was led by strong growth in the Haynesville Shale, where production jumped to a whopping 335 MMcfe/d from 83 MMcfe/d a year ago. In the Barnett Shale, production fell slightly to 114 MMcfe/d in the quarter, versus 137 MMcfe/d. Production in the latest quarter also fell in East Texas to 295 MMcfe/d from 306 MMcfe/d.

In the Piceance Basin Encana's unconventional gas production soared nearly 30% y/y to 442 MMcfe/d from 341 MMcfe/d. In the Canadian Division, production was up 14% to 1.5 Bcfe/d, mostly from strong drilling programs at Bighorn and Cutbank Ridge, where gas output was up y/y by about 52% and 37% respectively.

Like its peers, Encana has begun to sharpen its focus on capturing more oil and natural gas liquids (NGL) from the unconventional plays to take advantage of higher commodity prices. For instance, more liquids extraction equipment, including refrigeration plants, have been added at some field and midstream facilities in Canada to strip NGLs from the natural gas stream and capture additional value.

The reasons are clear: Encana's realized gas price in 3Q2010, which included hedging effects, was $5.27/MMBtu versus $7.44 in the year-ago period. The company's realized liquids price was $61.79/bbl, compared with $53.71 in 3Q2009.