ENCANA CORP. $53 (Toronto symbol ECA; SI Rating: Average) is one of North America’s largest independent natural gas producers.

In the past two years, EnCana has sold most of its conventional properties to focus on early-stage assets, particularly natural gas deposits. These properties are usually located in remote, mountainous areas of North America, which makes them more expensive to operate.

However, these new deposits are much larger than conventional gas fields. EnCana feels that these assets will last decades longer than its older properties. That extra cash flow should more than offset the higher costs, particularly as production from conventional sources of gas starts to fall.

Although the company has limited experience with offshore wells, it still has high hopes for its Deep Panuke offshore gas field south of Nova Scotia. EnCana recently teamed up with a smaller firm to evaluate Deep Panuke’s prospects, but a test well indicates that there is not enough gas to justify the cost of building a platform. The two companies now plan to drill smaller test wells, to get a better idea of the size of this field.

EnCana’s share of costs totaled $24 million (Canadian). That’s on top of the $371 million U.S. that it had already invested in this region. Even if EnCana abandons Deep Panuke, the loss would be modest compared to the cash flow of $4.9 billion U.S. (or $5.50 U.S. a share) that it generated in the nine months ended September 30, 2005.

The stock hit $70 in October 2005, but moved down as energy prices fell. EnCana probably earned $4.45 U.S. a share in 2005, and trades at just 10.3 times that figure. It also trades at 7.2 times its likely 2005 cash flow of $6.30 U.S. a share. The $0.30 U.S. dividend yields 0.7%.

EnCana is a buy.