Encana Corp. is opening the door to investment in the natural gas giant's smaller projects with a pioneering joint venture with a U.S. gas distributor.
The Public Utility Commission of Oregon approved a deal for Northwest Natural Gas Co. to spend $250-million (U.S.) to buy a stake in Encana's Jonah field in Wyoming. The venture marks the first time the Canadian company has joined hands with one of its customers, and Encana is negotiating a number of similar agreements with potential partners that would allow natural gas distribution and storage companies to invest in its projects.
The partnership highlights how natural gas companies are finding ways to keep their projects on track without having to invest millions of their own cash as gas prices languish. The Northwest deal, for example, will allow Encana to drill dozens of wells on a property that otherwise may not receive funding because numerous other plays under the Calgary-based company's control are more lucrative. In turn, Encana will be able to make use of the infrastructure it has already built at Jonah, easing the pressure to slow down production.
Encana executive vice-president Renee Zemljak said her company hopes that Oregon's regulatory approval will "enlighten others" to follow that state's example. Encana, for example, has been working with lawmakers in Colorado to allow other partnerships to proceed, the Denver-based executive said.
Encana is negotiating a number of similar deals, Ms. Zemljak said. The Jonah field, she said, made sense because existing infrastructure linking natural gas to consumers already exists. Encana's Horn River play in British Columbia could soon be linked in a similar fashion.
Northwest earlier this year signed an agreement with Encana stipulating that Northwest will pay about $250-million (U.S.) over five years in exchange for a slice of the natural gas the Canadian company churns out at its Jonah field in Wyoming. Northwest's investment will give it access to a share of production lasting roughly 30 years. Encana waited until regulatory approval came before announcing the deal.
Northwest expects the arrangement, which will cover between 8 and 10 per cent of its total natural gas needs, will give it 93 billion cubic feet at a price of about $5.15 per thousand cubic feet over the life of the deal. The partnership is a unique way to give Northwest the chance to lock-in long-term contracts rather than short-term hedges that can backfire when the price of natural gas is unstable. The natural gas distribution and storage company expects that the net present value of savings to customers will be more that $50-million over the lifetime of the investment.
Oregon's regulator had to weigh how the deal would affect customers of the gas utility. Northwest was able to persuade the commission that the long-term nature of the deal would smooth out some of the volatility in natural gas prices, as well as secure supply, to the benefit of customers, said Bob Valdez, a spokesman for the commission.
Encana's joint venture with Northwest, and the others it is pursuing, are minor compared with the company's recently announced $5.4-billion partnership with PetroChina International Investment Co. Ltd.
Utilities do not have substantial amounts of cash to work with. For this deal, Northwest will pay about $45-million to $55-million per year over five years, which will cover Encana's expected drilling costs for dozens of wells on about 777 hectares, the pair said in a statements.