Canada's Encana to cut workforce, payout as gas prices stay low

* Workforce to be reduced by 20 percent

* Dividend cut to 7 cents/shr from 20

* Sees 2014 capex falling to about $2.5 bln

* Shares end higher

By Scott Haggett and Sayantani Ghosh

CALGARY, Alberta, Nov 5 (Reuters) - Encana Corp, Canada's largest natural gas producer, said on Tuesday it will cut about 20 percent of its workforce, slash its dividend, and focus future spending on just five regions rich in oil and gas liquids as it looks to move away from low-value natural gas production.

The new plan, which includes the spin off of its historic Alberta freehold lands into a separate company, is part of new Chief Executive Doug Suttles' push to boost earnings and raise cash flow as the company faces the prospect that natural gas prices will remain weak for years to come.

The strategy comes on the heels of a series of failed attempts to boost profits under former chief executive Randy Eresman, who left last year. Eresman spun off the company's profitable oil sands operations in 2009 in order to become a pure natural-gas producer just as a wave of new shale-gas production caused prices to plunge.

"The company has been a total disappointment for a long time," said John Stephenson, a portfolio manager at First Asset Investment Management, which owns Encana (Munich: PCD1.MU - news) shares.

"But I think where they're going with things under Suttles is considerably better than where they were going under Eresman ... So far what I've heard from the new management has been encouraging."

Encana shares closed 3.34 percent higher at C$19.21 on the Toronto Stock Exchange, despite the company's decision to cut its 21-Canadian-cent quarterly dividend to 7 Canadian cents. On the New York Stock Exchange, the stock rose 2.75 percent to $18.34.

The dividend cut had been widely expected, with analysts saying the company needed to raise cash in order to boost drilling on liquids-rich fields.

"It's more in line with what their peers (are paying)" said Dirk Lever, an analyst with AltaCorp Capital.

Suttles said Encana will concentrate its drilling efforts on five key regions beginning next year, from about thirty now. Three are in the United States and two in Canada. All five are rich in liquids, offering valuable oil, or ethane, propane and other gas liquids along with natural gas production.

"We had more gas options in the portfolio than we could reasonably develop," Suttles said on a conference call.

Encana said it will also sell some now-surplus properties, though it did not set targets for any sales. It will also spin off its freehold oil and natural gas royalty interests in Alberta next year.

The new company, now dubbed Clearwater Royalty, will have more than 5 million acres of land originally granted to its predecessor more than a century ago.

Encana said it will retain a "significant" stake in the new company that will manage the leasing activities in the area, allowing it to get more out of an undervalued business and generate higher cash flow in the longer term.

Encana, which had 4,193 employees on Dec. 31, said it will lay off 20 percent of staff by year end and close its Dallas-area office, concentrating management in Calgary and Denver.

Encana also forecast a capital spending program of about $2.5 billion for 2014, down from an expected $2.7 billion-$2.9 billion this year.

The company can average more than a 10 percent compound annual growth rate in cash flow per share through 2017 after the new strategy is implemented, Suttles said.