By THE CANADIAN PRESS – 2 days ago

CALGARY — Natural gas giant EnCana Corp. (TSX: ECA) says it has entered into fixed price hedge contracts on about 35 per cent of the company's expected natural gas production.

The Calgary company said Monday the hedge applies to about about 1.39 billion cubic feet per day of its gas production in 2010. EnCana said it will get an average price of US$6.21 per thousand cubic feet for the 2010 gas year, which runs from Nov. 1 to Oct. 31, 2010.

In hedging contracts, oil and gas producers try to lock in part of their future production at a set price to avoid wild swings in energy prices and being forced to rely on the spot market.

For this gas year which ends Oct. 31, EnCana has locked in about two thirds of its production - or 2.6 billion cubic feet per day - at $9.13 per thousand cubic feet, twice the current spot gas price.

"Our gas price hedging program has served us well in the first five months of 2009, generating close to $2 billion in cash flow above what market prices would have delivered," said Randy Eresman, EnCana's president and chief executive.

"This strong cash flow has underpinned our 2009 capital investment during the global economic downturn. Our hedging program increases certainty in cash flow and helps ensure that we meet our capital investment and dividend requirements. It also brings greater certainty to the economics of our projects. At an average price of $6 per thousand cubic feet, EnCana expects to earn an after-tax rate of return on gas projects in excess of 20 per cent."

Looking ahead, EnCana said it expects natural gas prices to remain weak because of an oversupply and weak demand in the market.

"North American natural gas markets remain oversupplied due to two factors, the emergence of large new supplies from unconventional plays followed by a major economic downturn in the past year that has cut demand," Eresman said.

"These events have driven prices to levels well below what it costs to add new supplies - levels that we believe are unsustainable. In recent months, drilling has slowed and over time we expect that production will decline, bringing the market back into balance. However, it is difficult to predict when that will occur and what price will emerge," Eresman said.

EnCana is North America's largest natural gas producer, with operations in Western Canada, the Rocky Mountain states, Texas and elsewhere. Along with a U.S. partners, the company is also a major oilsands operator in northern Alberta.

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