Encana says Nucor deal will boost Colo. drilling

Associated Press Modified: November 8, 2012 at 6:30 pm •  Published: November 8, 2012
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DENVER (AP) — Encana says its new joint venture with the steel manufacturer Nucor Corp. could let it roughly double the natural gas wells it has in Colorado to about 8,000 within 20 years.

In the deal announced earlier this week, Nucor said it will pay its share of drilling costs, plus an extra amount of carried interest, for each well Encana Corp.'s U.S. division develops from holdings in the Piceance Basin. Nucor will receive natural gas in exchange.

The agreement, which resembles a smaller 2010 agreement between the companies, essentially gives Nucor a hedge on natural gas prices while Encana gets cash to develop wells, despite a natural gas glut that has slowed drilling.

Either company could suspend drilling if natural gas prices sink below a certain threshold, which wasn't disclosed.

Low natural gas prices and high oil prices have prompted some companies to shift away from the Piceance Basin to more oil-rich areas. Encana, however, has a long-term commitment in the Piceance Basin. It has a new office in Parachute at a building where it has a 20-year lease, spokesman Doug Hock said.

Encana's president of U.S. operations, Jeff Wojahn, said the agreement with Nucor gives Encana the cost certainty to execute its long-term development plans while giving Nucor a cost advantage in natural gas energy costs.