Abundant supplies have changed the North American natural gas game, and EnCana Corp. said last week that as a low-cost producer with large positions in unconventional gas basins it is poised to double its production in the next five years.

“Encana is a new natural gas company for a new natural gas era,” said CEO Randy Eresman. “Technology breakthroughs have unlocked vast new supplies of affordable, clean-burning natural gas — a century of North American supply that will very likely continue to grow as technologies further develop. This makes natural gas the clear energy choice for our future. Encana has the land, resources, people, technology, culture and financial strength to thrive in the new natural gas era.”

Eresman said supply should outpace demand and gas prices will be lower than “recent historical averages.”

“It has become increasingly obvious to us that with our financial strength combined with our huge, low-cost inventory of drilling opportunities and our proven capabilities, the greatest value proposition for our shareholders is to deliver a sustainably higher growth rate going forward. We are so convinced of our potential, in fact, that we have set the goal of doubling Encana’s production over the next five years,” he said.

Encana has 12.7 million net acres across many of the continent’s most prolific and lowest-cost resource plays, stretching from northeast British Columbia to Texas and Louisiana, the company said. Proved reserves are estimated at 12.8 Tcfe as of Dec. 31, sufficient for close to 12 years of production at current rates of about 3 Bcfe/d. “A recent independent assessment of the company’s resource potential has assigned Encana a low estimate of an additional 16 Tcfe of economic contingent resources, which is more than 120% the size of EnCana’s proved reserves,” the company said.

The company said it is increasing its capital investment this year by $750 million in order to grow production and is now targeting an exit rate for 2010 of between 3.4 Bcfe/d and 3.5 Bcfe/d. The additional capital increases forecast 2010 spending to about $4.5 billion. About three-quarters of the additional capital is aimed at accelerating land retention in the Haynesville Shale and to begin ramp-up of development across the company’s large portfolio of assets.

Encana said it expects to add supplies at an average cost of less than $4/Mcf. It has hedged approximately 2 Bcf/d of expected 2010 gas production at an average Nymex price of $6.04/Mcf. The company has hedged about 1 Bcf/d of expected production for the calendar years of 2011 and 2012 at an average price of about $6.50/Mcf.

The company also is expanding the information it provides on its reserves.

Lately Encana has disclosed proved reserves consistent with U.S. Securities and Exchange Commission (SEC) regulatory requirements. For year-end 2009, Encana also reported proved reserves based on a business case price forecast. Beyond that, Encana said it believes additional information it is now releasing on reserves estimates will aid investors in evaluating the company’s prospects. The expanded disclosure includes the proved reserves already reported, plus probable and possible reserves, as well as economic contingent resources.

Economic contingent resources are a component of a system of resource characterization defined under both the Society of Petroleum Engineers — Petroleum Resources Management System and in the Canadian Oil and Gas Evaluation Handbook. Increased alignment of reserves and resources definitions over the past few years prompted Encana to engage independent qualified reserves evaluators to evaluate reserves and economic contingent resources.

Economic contingent resources fall into three categories: low estimate (1C), best estimate (2C) and high estimate (3C). In determining economic viability, the same commodity price assumptions are applied as when estimating proved reserves. These contingent resources are not yet commercial due to contingencies such as the timing and pace of development, or the need for additional infrastructure. The low estimate is the most conservative category and carries with it the greatest degree of confidence — 90% — that these resources will be recovered. EnCana’s low estimate economic contingent resources are estimated at about 16 Tcfe, which the company said it believes is more than sufficient to support doubling production in five years.

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