* Says low prices may mean production cuts
* Q1 net rises to $1.48 bln from $477 mln
* Operating earnings $0.56/shr vs est $0.32/shr
* Production up 1.9 pct
* Shares drop 0.6 pct (Recasts with details and comments, updates shares. In U.S. dollars unless noted.)
By Scott Haggett
Calgary, Alberta, April 21 (Reuters) - Low natural gas prices may force EnCana Corp (ECA.TO) to shut in supplies, Canada's largest natural gas producer said on Wednesday, even as it reported a threefold rise in first-quarter profit on higher output and hedging gains.
The company -- which earlier this year spun off its oil sands operations into Cenovus Energy Inc (CVE.TO) so it could concentrate on boosting output from its shale and unconventional gas fields in Canada and the United States -- warned that weak prices could see it again withhold gas from the market.
"As we look forward to the remainder of 2010 we see the potential for continued downward pressure on natural gas prices." Randy Eresman, EnCana's chief executive, said on a conference call.
"Accordingly, we will watch market developments and where we see continued or longer-term weakness in natural gas prices we will act to preserve value. This may include a similar curtailment strategy to what we followed in 2009."
EnCana shut in nearly 500 million cubic feet of gas a day last summer, when prices for natural gas fell below $4 per million British thermal units.
With stored inventories of the fuel still high and production rising from U.S. shale gas discoveries, natural gas prices are again hovering near $4. Eresman said no decision has yet been made to restrict the company's output. However that will be revisited should the low prices continue.
Still, EnCana expects to move forward with a plan to double its production within five years. It announced the strategy last month as it boosted capital spending by 20 percent in order to ramp up drilling.
The company expects long term natural gas prices to run between $6 and $7 per mmBtu, a level that makes it profitable for it to raise its production capacity. However Eresman said on Wednesday he has grown a bit more pessimistic about the price forecast.
"We're tending to lean now towards the bottom end of that range," he said.
EnCana said on Wednesday its first-quarter net income rose to $1.48 billion, or $1.97 per share, including $1.06 billion in one-time gains on currency adjustments and hedging..
It earned $477 million, or 63 cents a share, last year.
Operating income, which excludes most one-time and unusual items, fell 23 percent to $418 million, or 56 cents a share, from $544 million, or 72 cents a share.
However the operating results beat the average analyst forecast of 32 cents a share, according to Thomson Reuters I/B/E/S, as production from the company's shale and unconventional gas properties was stronger than expected.
The higher operating result "was attributed almost entirely to higher then expected production volumes," Matt Donohue, an analyst with UBS Securities, wrote in a note to clients.
EnCana said it will divest $500 million of non-core assets this year, earmarking proceeds for its share buy-back program.
Natural gas prices have yet to recover from recessionary lows as industrial demand waned while new production boosted supply and pushed inventories to record highs.
The benchmark price of the fuel averaged $5.17 per million British thermal units in the first quarter, up 11 percent from the year-prior period but well below the $13-plus that natural gas commanded in better economic times in 2008.
EnCana's first-quarter cash flow, an indicator of its ability to pay for its growth plans, fell 15 percent to $1.17 billion, or $1.57 a share.
The company's production rose 1.9 percent to 3.27 billion cubic feet equivalent per day from 3.2 bcfe/d.
Revenue fell 4 percent to $3.55 billion.
Shares of the company fell 22 Canadian cents to $31.55 by midafternoon on the Toronto Stock Exchange.
$1=$1.00 Canadian Additional reporting by Isheeta Sanghi; editing by Rob Wilson