As a Canadian company, Encana
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
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
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
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.
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Fool owns shares of Chesapeake Energy and XTO Energy. The Motley Fool has a disclosure policy.
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