With its focus now trained exclusively on North American unconventional natural gas and integrated oil resources, EnCana Corp. delivered a solid earnings report for the final three months of 2007 with a 63% gain to net profit.

The Calgary-based producer reported Thursday that its net income rose to US$1.08 billion ($1.43/share), compared with $663 million (82 cents) in 4Q2006. Operating earnings, which exclude special items, rose to $1.33/share from 80 cents. Revenue climbed 58% to $5.8 billion. Wall Street analysts had forecast earnings would average $1.31/share in 4Q2007.

EnCana boasted a 9% hike to its 4Q2007 gas production, averaging 3.7 Bcf/d compared with the same period a year ago. Oil and natural gas liquids output rose 4%, averaging 136,000 bbl/d. For the year, the independent’s total gas output climbed 6% to average 3.6 Bcf/d — roughly twice the original forecast — mostly on strong performance from its Jonah play in Wyoming and a growing asset base in East Texas. Gas production last year was led by a 14% increase in U.S. production.

“EnCana delivered tremendous operational and financial performance in 2007, a direct result of our sharpened focus on North American unconventional natural gas and integrated oil resource plays,” said CEO Randy Eresman. “The sustainable value creation capacity of our resource play strategy is becoming increasingly evident. With strong production growth of 11% per share and successful price hedges that delivered a $1 billion benefit to 2007 cash flow, our company’s cash flow, operating earnings and free cash flow all increased substantially in a year when our industry faced many challenges.”

EnCana’s energy resources cover more than 25 million net acres of land in North America, and last year its U.S. gas production represented about 40% of the total gas portfolio, a share that is expected to increase to almost 45% in 2008, Eresman said.

Gas output from key resource plays climbed 14% in 2007 to 2.7 Bcf/d, up from 2.4 Bcf/d in 2006. EnCana’s biggest gains came from its East Texas operations, which reported a 44% jump in gas output. Fort Worth Basin operations, centered in the Barnett Shale, rose 23%; Jonah output in Wyoming climbed 20%. EnCana also benefited from incremental production gains from its latest acquisition, the Deep Bossier in Texas.

Total gas production in Canada rose 2% in 2007 from 2006. Cutbank Ridge in northeast British Columbia led with a 38% gain to gas output. Coalbed methane production in central and southern Alberta rose 34% and Bighorn in west-central Alberta rose 31%.

For the year EnCana added 2.2 Tcf of proved gas reserves, led by output from the Cutbank Ridge, Jonah and Piceance basin plays. Finding and development (F&D) costs averaged $1.65/Mcfe; F&D costs for gas and associated liquids were around $2.40/Mcfe.

EnCana’s commodity price risk management measures in 2007 resulted in realized gains of $1 billion after-tax, composed of a $1.1 billion after-tax gain on gas price and basis hedges and a $100 million after-tax loss on oil price hedges and other hedges. The producer has hedged about 1.9 billion Bcf/d of expected gas production from January to October 2008 at an average New York Mercantile Exchange (Nymex) price of $8.21/Mcfe.

This year the producer also has hedged 100% of its expected U.S. Rockies basis exposure using a combination of downstream transportation and basis hedges, including some hedges that are based on a percentage of Nymex prices. At the end of 2007, U.S. basis hedges, a combination of Rockies, Midcontinent and San Juan instruments, had an effective annual average differential of Nymex less $1.03/Mcf.

EnCana, which is 80% weighted to gas, is forecasting a jump in gas output this year of about 6% to average 3.8 Bcf/d. Total oil and gas output in 2008 is expected to increase 5% to average 4.6 Bcfe/d.

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