Encana Is a Beast

As a Canadian company, Encana (NYSE: ECA  ) may not be on the tip of natural gas investors' tongues when it comes to leading independent producers. This is one of the big boys, though, and if Encana sees its five-year growth plan through, it would be impossible to ignore.

Encana recently established a goal of doubling its production over the next five years. This is what the company achieved over the 2003-2008 time frame, so there's great precedent here. The company's asset base -- now highly concentrated on natural gas resource plays following the spinoff of Cenovus Energy (NYSE: CVE  ) -- certainly seems able to back up the ambitious goal. The company claims 12.8 trillion cubic feet equivalent in proved reserves and another 16 trillion in "low estimate" contingent resources.

A key question for investors is whether Encana can balance its growth goals with its return requirements. Encana averaged production of 3.3 billion cubic feet equivalent (Bcfe) per day in the first quarter, so we are talking about a very material addition to North American gas supply. It's conceivable that Encana's production growth -- coupled with that of XTO Energy (NYSE: XTO  ) , Southwestern Energy (NYSE: SWN  ) , and all of the other successful unconventional players -- could keep a lid on natural gas prices for years. Then again, sharp declines from conventional production could overwhelm the shale gas additions, as folks like EOG Resources (NYSE: EOG  ) contend.

In Encana's view, the current industry cost structure suggests a long-term price range of $6 to $7 per million BTU (British thermal units). The company views current prices of around $4 as unsustainably low, and says it's investing with a view to these long-term prices. If the company's analysis of market dynamics is correct -- and it does match up with Chesapeake Energy's (NYSE: CHK  ) 2011 view -- then this investment would be well worth the trouble.

In the meantime, Encana's not exactly suffering. The company's hedges enabled natural gas price realizations of more than $6 per Mcf this quarter, and at that level operations are kicking off plenty of cash flow to support this year's $4.5 billion capital budget.

Among all the heavily natural gas-weighted exploration and production companies, Encana is one of the safest bets for patient investors. This may not be a household name today, but once everyone stops hating natural gas, it could be.