EnCana Corp., North America’s largest independent, may cut its 10% targeted annual growth rate after next year to ensure that the company’s long-term growth is not threatened by rising oil field service costs, the CEO said Tuesday.

Speaking at its annual investors’ conference in Calgary, Gwyn Morgan said EnCana is focused on North American natural gas and oil sands, but even with the probable production cutbacks, the company will make up for the shortfall by increasing the number of shares it buys back beginning next year.

“We have a target of 10% per-share growth,” Morgan said. “We can achieve that for at least the next five years through our existing North American asset base.” However, he said that the company could achieve the same goals by growing at 7% “in terms of production,” and buy back 3% of its shares.

EnCana has actually been increasing its oil and gas output as much as 15% annually through drilling and acquisitions, including its $2.2 billion buy of Denver-based Tom Brown Inc. this year. Excluding asset sales, EnCana’s production in 2005 is already expected to increase 14% over this year, and EnCana has announced plans to buy back up to 10% of its stock.

“Beyond 2005,” said Morgan, “we’re saying, ‘As we look to the long term, what’s the right level? And it will be a combination of share buybacks and production growth?'”

EnCana’s production outlook will drop because of the rising cost of drilling and field services in Western Canada and the Rocky Mountains, where the company concentrates most of its exploration. Morgan even hinted that because it is the busiest driller in North America, the company could actually be driving the inflation on field costs.

In 2005, EnCana plans to drill about 5,000 wells, down from 5,500 this year. Capital spending will be about $5.2 billion, which is $600 million less than the company’s projected cash flow. Asset sales also are expected to continue, said Morgan. In October, the company sold its North Sea assets to Nexen Inc for $2.1 billion. Still on the table are assets in Ecuador and some U.S. offshore properties.

Weighing in on the management meeting, Lehman Brothers analysts said that the decision to lower production forecasts long term “would be the right move as it should raise returns.”

Analysts Thomas Driscoll and Philip Skolnick noted that “investor concerns, need to constantly pursue new exploration opportunities, cost pressures due to increased activity, the stronger Canadian dollar, existing well inventory depletion in five years, challenge to consistently manage capital and portfolio are factors stated as why they will re-evaluate their long-term target.”

The analysts expect EnCana to possibly reduce production growth to a target of 4-6% in 2006 and supplement per share growth with the repurchase of 4-6% of shares outstanding. “We currently estimate production growth of 7.5%

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