* Michigan properties removed from U.S. asset package
* Company declines to answer questions about Reuters report
* Still awaiting results of internal investigation
* Q2 net loss $1.5 bln vs yr-earlier profit of $383 mln
* Q2 operating income $0.27/shr vs $0.48/shr a yr earlier
* Co says average daily liquids production climbs in qtr
* Shares drop 3.3 pct (Adds details and comments. In U.S. dollars unless noted.)
By Scott Haggett
CALGARY, Alberta, July 25 (Reuters) - Encana Corp said on Wednesday it is no longer including any of its Michigan properties in an asset sale package after Reuters reported that it colluded with Chesapeake Energy Corp to lower the price of exploration lands in the state.
Randy Eresman, chief executive of Canada's No. 1 natural gas producer, declined to answer questions on the allegations on a conference call held to discuss the company's quarterly earnings. Encana reported a $1.5 billion second-quarter loss on Wednesday due a $1.7 billion charge stemming from low natural gas prices.
However, Eresman did say that Encana is no longer looking to sell the properties at the center of allegations that it and Chesapeake colluded to lower the cost of land over a promising shale oil and gas field in Michigan.
"We have to reiterate that we're not in a position to provide any further updates regarding the Michigan matter at this time. However, I can confirm that we have taken the Michigan assets out of the U.S. liquids package," Eresman said in response to an analyst's question.
Encana launched an internal investigation led by its board in late June into the report that it and Chesapeake plotted to avoid bidding against each other in certain Michigan land deals. It has said it will not comment further on the matter until its probe is complete. Chesapeake has declined to comment beyond saying that it never bid jointly with Encana.
The Michigan lands had been included in a package of U.S. properties for which Encana had been seeking joint-venture partners to speed development.
Encana shares fell 69 Canadian cents to C$20.08 on the Toronto Stock Exchange on Wednesday. The shares have fallen 30 percent over the past 12 months.
The company reported a quarterly net loss of $1.5 billion, compared with a year-earlier profit of $383 million. The results were hit by a $1.7 billion noncash after-tax impairment charge resulting primarily from the decline in 12-month average trailing natural gas prices.
Operating income, which excludes most one-time items, fell 44 percent to $198 million, or 27 cents a share, from $352 million, or 48 cents a share.
Encana's cash flow, a key indicator of the company's ability to pay for new projects and drilling, fell 27 percent to $794 million.
The company said natural gas production fell 15 percent to 2.8 billion cubic feet per day, due to voluntary capacity reductions, divestitures and natural declines. Encana has been refocusing its operations on producing oil and natural-gas liquids to offset stubbornly low gas prices.
The company, which has projected average daily liquids production of 30,000 barrels per day for 2012, said it expected 2013 output to range from 60,000 to 70,000 barrels per day.
Oil and natural gas liquids production volumes averaged about 28,000 barrels a day in the second quarter, increasing nearly 4,000 barrels a day from a year earlier, the company said.
$1=$1.02 Canadian Additional reporting by Euan Rocha in Toronto; Editing by Peter Galloway