Encana Corporation (TSX:ECA)(NYSE:ECA) has been a disaster for long-term investors, but contrarian types are now looking at the massive sell-off and wondering if the stock is worth a poke.

Let’s take a look at the current situation to see if Encana deserves to be in your portfolio.

Tough times

Encana has a history of making ill-timed decisions. The company spun off its oil sands properties back in 2009 to create Cenovus Energy with the idea of focusing on natural gas. At the time, gas prices were still strong and oil hadn’t started its big run.

The boom in shale gas production subsequently knocked the crap out of natural gas prices, while oil rallied above $100 per barrel.

Management decided to reverse course again, selling off gas properties at a low point in the market and buying oil reserves at what has unfortunately turned out to be the peak.

The result has been a bloodbath for shareholders. The stock is down more than 60% in the past 12 months, and management is faced with weak commodity prices and a nasty debt load.

Cash flow concerns

Cash is king right now in the energy sector. Those that have it are sitting pretty. The rest are sitting ducks.

Encana finished 2014 with long-term debt of US$7.8 billion. Management did a good job of convincing the market to buy $1.44 billion in new stock back in March and used the money to redeem the notes that were coming due in 2017 and 2018.

At the end of Q2, the debt load stood at US$5.2 billion. At that point, it looked like the company was going to be able to battle through the rout because WTI oil prices had recovered through Q2 to $60 per barrel. Since then, things have gotten a lot scarier.

Oil plunged below $40 per barrel in late August, and while the recent rebound is providing some relief, the numbers are still a concern.

The company expects its overall capital expenditures in 2015 to be US$2-2.2 billion. Cash flow for the year is projected to be US$1.4-1.6 billion. The company brought in US$495 million in Q1 and US$181 million in Q2. To hit the bottom end of the guidance, cash flow for the back half of the year has to be better than US$724 million, and that might be a bit of a stretch in the current price environment.

Some good news

Encana recently announced a US$1.3 billion deal to sell its natural gas holding in Louisiana. The sale will provide the company with US$850 million in cash and reduce commitments by US$480 million.

This will take further pressure off the balance sheet and buy the company more time as it waits for a recovery in crude prices. The deal should also improve margins.

Should you buy?

Assuming Encana uses all the proceeds of the recent sale to bring down its debt load, the company’s balance sheet will be in better shape, but it still isn’t out of the woods, especially if oil resumes its downward trend.

However, if you believe oil has bottomed, there is a case to be made for owning Encana based on the quality of its portfolio. At the current price, the stock looks very attractive based on its reserves and it wouldn’t be a surprise to see one of the big players take a run at the stock.

I wouldn’t buy Encana on the hopes of getting a takeover premium, but there could be some big upside to the name if oil continues to recover.

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Fool contributor Andrew Walker has no position in any stocks mentioned.