It seemed like a good idea at the time, splitting its integrated oil and natural gas divisions into separate entities in 2009. Encana Corp.'s timing, however, was ill fated. Newly spun-out Cenovus drank in crude oil profits over the subsequent years, while gas-leveraged Encana was left to asphyxiate on natural gas prices, headed to a 10-year trough. Encana's share price has deflated by 65% since, 80% off its peak.

Since then, Encana has outspent cash flow by $2 billion. Says Bernstein Research analyst Bob Brackett, “The fate of companies that stand still in terms of growth, or that consistently overspend cash flow, is to eventually disappear, usually by acquisition. One possibility is that such a fate awaits Encana.”

Encana's newly instated chief executive Doug Suttles, previously chief operating officer of BP Exploration & Production, begs to differ. In September he declared “maintaining the status quo is not an option”—and promised radical change.

Although it has proven to be a low-cost operator, many of Encana's reserves and production are located in second-tier resource plays that need $5 gas or higher to be economic, points out Brackett. “Figuring out how to high grade as well as focus Encana's portfolio to work in a sub-$5 price portfolio will be Suttles' challenge.”

The catalyst for change came in November, and it's nowhere near status quo.

When you're sitting at the bottom of the equity standings, it's rather bold to predict a Super Bowl win, but that's what Suttles did. Following a top-down strategic review, the company revealed its reorganization plan, with this prediction: “Our vision is to become the leading North American resource-play company.”

Apparently, Suttles doesn't just want to survive the gas-price downturn; he wants to best the best. Investors will say, “Show me.”

Encana's 11-million-acre portfolio is stocked with more than 19 resource plays across the US and Canada, at all of which the company has aimed capex. Other than the obvious gas bloat of assets, that's spreading capital allocation too thin, critics claim.

With the announcement, Suttles stamped stars on five liquids-prone plays in Encana's portfolio: the Montney and Duvernay plays in Canada, and the DJ Basin, San Juan Basin and Tuscaloosa Marine shale in the US The goal: funnel 75% of capex into accelerating production from these plays, to achieve a 50-50 gas-to-oil production ratio by 2017.

“Our capital allocation must be focused on the best returning projects,” he said, acknowledging the previous lack thereof. “This is about leveraging our liquids-rich, oil and condensate opportunities. By 2017, our liquids growth in these five assets will grow about 500%.”

Better late than never. At least Encana has a deep bench of emerging plays in the portfolio. In addition to the cash-flow leverage of increasing liquids production, these particular plays have scale, running room and existing infrastructure, he emphasized.

But Suttles was clear he wanted to maintain gas optionality in the portfolio. “We want to retain some of that,” he said, “because as soon as you think you know what commodity prices are going to do, you find out you're wrong. A number of our assets are well positioned if gas prices strengthen over the next several years, and we would want to invest in those.”

Encana's view of gas markets is rosier than most, anticipating $6 by 2020. “A number of our gas assets would be fantastic assets to backstop LNG [liquefied natural gas], and we'll look for opportunities to link our big gas resource base to those options.”

Suttles purposefully avoided naming which plays he would protect, but the company's large Haynesville shale and East Texas/Amoruso Field positions are primed for Gulf Coast export. The Horn River Basin, with some 1 million net acres under control, is in a perfect location to feed future Canadian LNG export projects.

And considering its 20-year joint venture with utility Nucor for gas production, the Piceance Basin position is likely a keeper.

Everything else is divestible. “We have more positions than we need, and if market conditions are acceptable, we'll divest some assets.”

That might include its prized Jonah Field, potentially ripe for a master limited partnership, or Deep Panuke, offshore Nova Scotia, that reached first production last year. Emerging play positions primed for sale include Eaglebine, Mancos, Mississippi Lime, Collingwood/Utica and Alberta's Big Horn. But any sale proceeds are extra, not core to the forward strategic plan.

“This is about having a business model sustainable through commodity cycles,” said Suttles. The new Encana begins now.

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