Encana Corp. plans to continue to keep its eye on the “highest-return plays” in North America, which for the near term means more liquids and oil development and no natural gas drilling, CEO Randy Eresman said Wednesday.

Eresman spoke with analysts during a conference call to discuss the company’s quarterly operations performance. Some of Encana’s gas wells were shuttered early this year, and there are no plans to bring the output back online until prices signal otherwise, he said.

“If the environment were to continue for prices, we’ll reduce our investments in natural gas until the market is back in balance,” said the CEO. The company’s management team has been “encouraged by the recent increase in gas prices but they would need to be “more stable” before any of the company’s shut-in wells are brought back online. Shut-ins at some of the U.S. and Canadian operations were put in place early this year.

Some of Encana’s liquids properties are on the market to help defray development costs, including the Eaglebine formation in Texas, the Tuscaloosa Marine Shale and in the Mississippian Lime. However, only portions of the leaseholds would be sold so that projects “will come to commercialization at a faster pace and in a period of time when there are higher costs in the early part of the play, said Eresman. “We can move at a faster pace by reducing a small component of ownership, and we still would have lots left over for ourselves in substantial liquids drilling over time.”

Data rooms are open for the liquids plays, as well as for a package of properties in the Alberta Duvernay Shale and a 10% interest in Encana’s Cutbank Ridge partnership.

The Calgary producer’s North American natural gas production fell year/year by 15% to 2.8 Bcf/d from 3.3 Bcf/d on voluntary shut-ins, divestitures and natural declines. However, liquids output jumped 17% to 28,000 b/d from 24,000 b/d. The company had expected 2012 average liquids output would be about 28,000 b/d.

“We will continue to advance our strategic shift toward achieving a diversified portfolio of production and a more balanced stream of future cash flows by accelerating our development of oil and liquids rich natural gas plays and creating value by investing in our highest return projects,” said Eresman. “We are taking a low risk approach to increasing our production of oil and liquids as we focus on the extraction of more natural gas liquids [NGL] from existing streams using third-party facilities and accelerating the development of new plays targeting light oil.”

The growth in liquids production volumes primarily came from increased royalty interest volumes received and a successful drilling program in the Peace River Arch. NGL volumes would have been an additional 5,000 /d higher in 2Q2012 were it not for operational issues by the third-party owned Musreau facility, which was down over the period.

Encana has increased its 2012 guidance for total liquids production by 7% to 30,000 b/d and it plans to spend an additional $600 million in the second half of the year “to take advantage of positive initial results achieved in a number of light oil and liquids rich natural gas plays,” said the CEO. With the increased investment, projected average daily liquid production in 2013 is expected to be 60,000-70,000 bbl, about 40% of which is to be comprised of liquids.

Encana reported a net loss of $1.5 billion in 2Q2012 after recording one-time impairments on declining 12-month average gas prices. The producer earned $383 million in the year-ago period. The company recorded a $1.7 billion after-tax charge in the latest quarter on low gas prices.

Operating income, which excludes the one-time items, fell 44% to $198 million (27 cents/share) from $352 million (48 cents). Cash flow, considered a key indicator of the ability to pay for new projects, plunged 27% year/year to $794 million. Because of financial hedges in place, realized gas prices were $4.79/Mcf, versus $5.09 a year ago. Realized liquids prices were $80.32, down from $92.66 in 2Q2011.

“Given the current pricing environment, the company expects that further declines in 12-month average trailing natural gas prices will likely result in the recognition of future ceiling test impairments,” Eresman said.