Shares of Encana Corporation (TSX:ECA)(NYSE:ECA) have risen 50% off the August lows, and investors are wondering if this is the right time to start a new position in the stock.

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

Oil and gas woes

Encana was once Canada’s largest company by market cap with a massive portfolio of natural gas, oil sands, and refining assets that put it among North America’s premier energy players.

In late 2009, management decided to concentrate on natural gas and split the company into two separate entities. Encana kept the gas portfolio, and the oil sands and refining assets went into a new company called Cenovus Energy.

Natural gas prices were quite strong back then, and oil was still trying to recover from its massive slide during the financial crisis. So, the move to separate the company seemed like a reasonable decision.

Unfortunately for Encana’s shareholders, the two markets reversed course. An explosion of shale production drove natural gas prices to multi-year lows, and a massive wave of stimulus by the world’s central banks lit a fire under oil prices.

By 2013, shareholders and the board were getting upset and decided to bring in a new CEO. Encana began its transition back to being an oil and gas liquids company.

Natural gas assets were sold off at less-than-ideal prices, and management went big on a couple of expensive oil acquisitions that have turned out to be top-of-the market buys.

Of course, nobody expected WTI oil to drop from $100 per barrel last year to the recent lows below $40, but that isn’t any consolation for shareholders who watched the stock fall from $36 in early 2010 to about $7.50 back in August.

Better days ahead?

The stock is on a roll lately and now trades for just under $12 per share. If oil prices continue to rally, Encana could continue to see further gains, but investors have to be careful because the numbers aren’t going to be very good otherwise.

Encana expects 2015 cash flow to be US$1.4-1.6 billion and capital expenditures to be US$2.2-2.22 billion. Based on the first-half cash flow and spending results, the forecasts might be a bit ambitious on both accounts. Capex will really have to be pulled back in the last part of the year to hit the target, and energy prices have weakened so significantly since the end of Q2 that cash flow assumptions might be high.

If oil and gas rally, the party continues. If not, the hangover might be rough.

Nonetheless, Encana is definitely doing a good job of raising capital through asset sales. Cash proceeds from divestitures will total about $2.7 billion in 2015, and the company says it will reduce its net debt position by $3 billion by the end of the year. Encana finished 2014 with US$7.8 billion in long-term debt, so the massive load is coming down to a more manageable level.

Should you buy?

Further strength in oil prices will certainly push the stock higher, especially given the extent of the sell-off. Unfortunately, we don’t know if the latest oil rebound is the start of a broad recovery or just another head fake.

I would at least wait for the Q3 numbers to come out before starting a position. If the results are worse than expected and oil happens to reverse course at the same time, the stock could take a sharp hit.

At this point, Encana still looks risky.

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