Nucor Corporation announced Tuesday that it has entered into a long-term agreement with Encana Oil & Gas (USA) Inc. for an onshore natural gas drilling program in the continental United States that will ensure a reliable, low cost supply of natural gas for all of the company's existing and expected future needs for more than 20 years.
Under the terms of the agreement, Nucor will pay its share of costs plus an additional amount of carried interest as each well is drilled, subject to a cap on carry paid for each well and a cap on total carried interest. Either party may suspend drilling if natural gas prices fall below a predetermined threshold. Encana, a proven leader in drilling technology and environmental stewardship, will be the operator and will provide expertise to drill, complete and operate the wells. This new agreement is in addition to an earlier and smaller onshore natural gas drilling agreement with Encana that was established in 2010.
The drilling of natural gas wells resulting from the two agreements is expected to provide enough natural gas to equal Nucor's usage at all of its steel mills in the US plus the usage of two DRI facilities, or alternatively three DRI plants. Although it is not possible to guarantee the production volumes, the agreements are for drilling in areas with proven reserves.