CALGARY, Alberta, Sept 8 (Reuters) - Encana Corp, Canada's largest natural gas producer, will sell its remaining stake in PrairieSky Royalty Ltd, the company it spun out to investors in May, in a C$2.6 billion ($2.37 billion) deal as it continues to raise funds to increase oil production.

Encana said on Monday a group of underwriters led by TD Securities will buy the 54 percent stake, representing 70.2 million shares, for C$36.50 a share. That's a 4.2 percent discount to PrairieSky's C$38.09 closing price on the Toronto Stock Exchange on Monday.

The underwriters will offer the shares to investors.

PrairieSky holds 5.2 million acres of fee simple lands in Western Canada and collects royalties from oil companies operating on the properties. It pays dividends from its cash flow. Much of the property dates back to railway land grants awarded to an Encana predecessor company in the 19th century.

Encana spun out a 46 percent stake in the royalty company in an initial public offering in May that raised about C$1.67 billion. It indicated at that time it would further pare its interest in the company.

"We didn't intend to be long-term shareholders," said Jay Averill, a spokesman for the Calgary-based company.

Encana has been restructuring its operations away from natural gas as it looks to increase output of more valuable oil and natural-gas liquids.

Encana shares closed up 11 Canadian cents at C$24.70 on the Toronto Stock Exchange.

($1=$1.10 Canadian)

(Reporting by Scott Haggett in Calgary and Anannya Pramanick in Bangalore; Editing by Peter Galloway)

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