While many North American gas producers will see ever sharper production decline rates in the coming years, EnCana Corp. said its “resource play” strategy has enabled it to grow both production and reserves and project flatter declines each subsequent year.

“How can the biggest independent grow the fastest, especially in an industry that is swimming against the tide of high decline rates and lack of exploration success in conventional gas plays?” asked Brian Ferguson, executive vice president of corporate development at EnCana. “What differentiates EnCana is our focus on low decline, long-lived unconventional resource plays with huge growth potential.”

Instead of focusing on conventional resources, EnCana has targeted tight gas sands, coalbed methane and gas shales and has accumulated an acreage position of about 17 million net undeveloped acres, or about three times the size of the state of Massachusetts.

EnCana characterizes “resource plays” as large unbooked resources at a relatively early stage of exploitation. Operations to produce the resource plays are repeatable and scaleable, so economies of scale can be achieved over millions of acres and thousands of well locations, Ferguson said Tuesday at the Lehman Brothers CEO Energy/Power Conference.

“Approximately 60% of our current production comes from resource plays, which we see increasing to about 80% over the next five years,” he said.

From 2003 to 2010, EnCana’s natural decline rate will stabilize to about 17%/year and the decline curve will get flatter over time. “Our production replacement treadmill is not as steep or running as fast as most of our competition, meaning more cash flow and other resources are available for growth rather than just churning and standing still,” he said. Over the same seven-year period, U.S. producers are expected to see an average decline rate over the same period of about 28%.

EnCana’s growth areas are in the Plains region of Southern Alberta (more than 1 Bcf/d and 10% production growth projected), the Foothills region of Western Canada (more than 600 MMcf/d), and the U.S. Rockies (675-725 MMcf/d before royalties in 2003).

“When you focus on what you do well you can reduce the complex to simple repeatable actions,” said Ferguson. “Using our Northeast British Columbia position as an example of this, we have determined how to best extract gas from this tight gas flow using horizontal underbalanced drilling, and now we are drilling hundreds of these wells on literally millions of acres of land to continue to grow production. We focus on what we’re good at and build large land positions around our core competencies.”

He said the company, which is the third largest North American gas producer among majors and independents, is forecasting 2002-2003 and 2003-2004 annual gas production growth of 8-12%, with total gas sales in 2004 of 3.25-3.45 Bcf/d.

“Our first-half sales are already at the bottom end of the 2003 guidance range and we plan to add another 150-200 MMcf/d of production over the course of the second half of this year.”

EnCana is forecasting 10% annual earnings per share growth through 2006.

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