ENCANA CORP. $48 (New York symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 772.0 million; Market cap: $37.1 billion; WSSF Rating: Average) is a leading Canadian energy company. Natural gas accounts for 80% of its production, while oil supplies the remaining 20%.

In the three months ended December 31, 2006, lower gas prices cut EnCana’s profit 42.5%, to $0.84 a share from $1.46 a year earlier. These figures exclude unusual items such as gains on the sale of assets and hedging gains. Cash flow per share fell 24.3%, to $2.18 from $2.88, while revenue fell 37.3%, to $3.7 billion from $5.9 billion.

In the past few years, EnCana has sold its overseas assets to focus on unconventional properties in North America, such as early-stage gas fields and the oil sands in Alberta.

These assets cost more to develop, at least initially, but should last longer than regular properties. Focusing on North America also cuts EnCana’s political risk.

Extracting oil from the oil sands is much more costly than from regular oil wells. EnCana aims to increase its oil sands production 10-fold over the next decade. Two new joint ventures with ConocoPhillips — one in Canada and one in the United States — will help cut its costs. The Canadian operation will operate the oil sands, while the American venture will operate refineries in Illinois and Texas that will convert heavy oil into gasoline.

The two ventures will operate independently; the Canadian operation will sell its production at the highest price it can get, and the U.S. refineries will buy heavy oil as cheaply as possible.

Despite the cost savings from these ventures, shortages of materials and labor have hindered EnCana’s expansion plans.

Consequently, EnCana will cut capital spending in 2007 by 6.5%. It is using the savings to double its quarterly dividend to $0.20 a share. The new annual rate of $0.80 yields 1.7%.

The company should earn $4.30 a share in 2007, and it trades at just 11.2 times that figure. It’s also cheap at just 4.0 times its projected cash flow of $11.93 a share.

EnCana is a buy.