With 80% of its production tied to natural gas, EnCana Corp. said Wednesday it will turn its back on Alberta and instead zero in on its burgeoning gas plays in Wyoming and Texas with an eye to build its gas output in North America by 7% in 2008. EnCana also said it plans to advance its Deep Panuke gas project offshore Nova Scotia.

Canada’s largest gas producer forecast that its total North American gas production would grow to 3.78 Bcf/d from 3.54 Bcf/d in 2007. In the United States, gas output is expected to jump 25% to 1.66 Bcf/d from 1.33 Bcf/d. Canadian gas output, which had been centered in Alberta, is slated to drop 4% to 2.12 Bcf/d from 2.21 Bcf/d “to reflect the recent erosion of economic returns.” Total oil and natural gas liquids production (excluding volumes from integrated oilsands) is expected to decline about 8%, mostly because of a natural decline in mature properties.

Total North American oil and gas production is expected to grow about 5% to 4.6 Bcfe/d from 4.3 Bcfe/d in 2007.

“The strength and diversification of our portfolio reduces our risk and gives us opportunities for direct investment in the most attractive return projects, which is what we plan to continue to do in 2008,” said CEO Randy Eresman. “With the geological and economic success in our unconventional gas fields in Wyoming and Texas, we are substantially increasing investment in our U.S. natural gas production, which is expected to grow by about 25% this year.”

EnCana’s gas growth, said Eresman, “is largely driven by our leading-return projects — Jonah in Wyoming and the Amoruso Field in East Texas, where a planned investment increase of about 65%, to more than $1 billion, is expected to boost production more than 45%.”

The independent is planning to spend about US$6.9 billion in 2008, a 13% jump from 2007. The capital funding program will be internal, underpinned by natural gas hedges at an average price of about $8.20/Mcf on 47% of its forecasted production from January to the end of October 2008. EnCana also expects to generate an estimated $500 million from divestitures in 2008.

“In recent years we have redesigned the company to focus on our core strength — North American unconventional resource development,” said Eresman. “It’s what we do best and our resource play strategy is working very well. Our core business strategy is steadfast.”

The company noted that “a large change in the Canada-U.S. dollar exchange rate, increased labor rates, higher energy costs and significant increases in property taxes have made some of EnCana’s Alberta-based projects less economic, as compared to previous years and relative to the rest of its portfolio. In addition, the planned Alberta royalty increases starting in 2009 have significantly diminished returns for deep gas well drilling and new and emerging resource plays.”

Increases in Alberta royalties will result in a cut of about $500 million to its Alberta investments in 2008. With the expected slowdown of nonoilsands industry activity levels in Canada, capital inflation is expected to be “very low” in 2008, EnCana noted. In the United States, where EnCana’s activity will remain “robust,” the company expects inflation of about 5% as service capacity expands to meet demands.

“Taking all these factors into consideration, EnCana’s Alberta drilling for shallow gas, deep gas [and] coalbed methane and its delineation drilling of new oilsands plays will be lower than in previous years,” the company said. “Investment in British Columbia in 2008 is expected to be about the same as in 2007. In Canada, excluding integrated oilsands, about $3.0 billion is planned for upstream investment, about 10% lower than in 2007.”

EnCana said it plans to double its dividend next year. Board approval of the planned increase in 2008 would result in an annual dividend of $1.60/share, increasing the yield to about 2.4% at the current share price. The company also expects to purchase about 2% of its shares in 2008.

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