For an exploration and production company, what is the way out in a lousy natural gas market? Move away from natural gas production and focus on liquids instead. That's what Calgary-based Encana (NYSE: ECA) did. And it has managed to turn last year's first-quarter loss into profit this time.

Net income for the first quarter stood at $12 million, which is a turnaround from the $361 million loss in the year-ago quarter. The company ramped up liquids production by 26% to 29,000 barrels per day. Natural gas production, at 3.27 billion cubic feet per day, went up 2% on a year-over-year basis but declined 5% from last year's fourth quarter.

Trimming the flab
Management is making a conscious effort to reduce natural gas production, which is commendable. Traditional natural gas players around the industry such as Chesapeake Energy (NYSE: CHK) and SandRidge Energy (NYSE: SD) have been doing the same as an effort to minimize losses. Like these companies, Encana also has been divesting natural gas assets due to the low prices and nonexistent margins. Instead, the company has beefed up its balance sheet with cash, a number of venture transactions, and dispositions.

With recent divestitures to the tune of around $4.8 billion, Encana had built a cash position of approximately $2.4 billion by the end of the first quarter. It aims to further bolster its cash position to $3 billion by the end of this year. I believe this is a fantastic move by management. This gives the company the option to make investments without really requiring it to raise debt or equity capital when the need arises.

In terms of pricing, Encana has its natural gas prices hedged at an average $4.58/mcf for the first quarter. Looking ahead, this shouldn't be a major problem given that current prices are below $2/mcf. Additionally, the company is aggressively expanding its liquids production, which should see a further bump up.

Foolish bottom line
Encana seems to be moving in the right direction. The stock has been down 36% in the last 12 months, but investors could be seeing an opportunity here. We at The Motley Fool will help you stay up to speed on the top news and analysis on Encana. You can start subscribing now by adding the company to your free watchlist.

However, with natural gas expected to stay at record lows for the foreseeable future and if you are not sure you are ready to jump in at this time, energy still has plenty of viable options. If you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free.