* Encana doubles spending on Haynesville shale play
* EPS $1.26 vs forecast $0.67
* Cash flow drops 18 pct to $1.94 billion
* Shares jump more than 4 percent (Adds CEO quotes. In U.S. dollars unless noted)
By Jeffrey Jones
CALGARY, Alberta, April 22 (Reuters) - EnCana Corp (ECA.TO) is pumping another $290 million into a big Louisiana natural gas play despite depressed prices, Canada’s biggest energy company said on Wednesday as it reported higher-than-expected profit.
EnCana shares jumped C$2.21, or more than 4 percent, to C$54.92 on the Toronto Stock Exchange as investors welcomed the rare optimism in an industry that has gone from boom to bust in seven months as prices have tumbled.
The company now plans to spend $580 million this year at its Haynesville unconventional gas properties in northwestern Louisiana, one of several shale gas prospects that have changed the outlook for North American supply in recent years.
Chief Executive Randy Eresman said he expects Haynesville to become one of his company’s most important gas assets.
“We now expect to drill a total of 50 net wells in the play for 2009. Additional capital for this play will be sourced from savings identified in other areas of the company,” he said.
EnCana is developing other unconventional plays, such as Horn River in northeast British Columbia and Deep Bossier in East Texas, with gas prices at less than half last year’s level.
Shale prospects are known for large reserves that are tough to tap, requiring rapid-fire drilling and rock fracturing to gradually lift output. EnCana is one of the largest developers of such plays.
A recent focus on such plays has changed the outlook for the North American gas market dramatically and points to a lengthy period of ample supplies, Eresman told reporters.
EnCana has signed up for space on two pipeline proposals, the expansion of the Boardwalk Pipeline Partners’ (BWP.N) Gulf South pipeline, and Energy Transfer Partners’ (ETP.N) planned ETC Tiger line, to carry output from Haynesville to market.
EnCana had planned to split into a gas producer and an integrated oil sands and refining firm, but shelved the idea last year as commodity and credit markets soured.
“I think you should forget about it in the current environment,” Eresman said.
For the split-up to work, pure plays must fetch a higher value than diversified companies, energy-market “normalcy” must return and credit markets must allow debt to be placed into the new oil vehicle at a reasonable price, he said.
In the first quarter EnCana earned $962 million, or $1.28 a share, up from year-earlier $93 million, or 12 cents a share.
The results included a mark-to-market hedging gain of $89 million, compared with a loss of $737 million last year.
Excluding one-time items, EnCana earned $948 million, or $1.26 a share, down 9 percent from $1.04 billion, or $1.39 a share. It had been expected to earn 67 cents a share, the average forecast among analysts surveyed by Reuters Estimates.
EnCana said it benefited from a 31 percent drop in operating and administrative costs, due mostly to a weaker Canadian dollar and lower fuel prices.
Eresman also credited Alberta’s new royalty regime, which means less payout to the government when gas prices are low.
“All in, ECA posted a strong quarter on the back on strong operating results and a series of well-timed hedges,” Dundee Capital Markets analyst Menno Hulshof said in a research note.
Cash flow, a glimpse into an oil company’s ability to fund projects, fell 18 percent to $1.94 billion, or $2.59 a share.
Fortunes of EnCana and its rivals have dwindled in the past year along with commodity prices in the global recession.
During the quarter, oil prices averaged $43.31 a barrel, down 55 percent from the year before. Natural gas on the New York Mercantile Exchange averaged $4.47 per million British thermal units, down 49 percent.
The company’s first-quarter gas and oil production rose 3 percent to 4.7 billion cubic feet equivalent per day.
$1=$1.24 Canadian Additional reporting by Scott Anderson; editing by Peter Galloway