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Northwest Natural Gas Company, dba NW Natural, has executed an amendment to its Carry and Earning Agreement with Encana Oil & Gas (USA) Inc. in order to facilitate Encana's proposed divestiture of its interest in the Jonah field in Wyoming to an affiliate of TPG Capital (TPG), as announced by Encana on March 31, 2014.
The agreement ends NW Natural's drilling of wells in the field, but maintains the Company's ownership interest in both existing production as well as a number of future locations.
NW Natural entered into agreements with Encana in 2011 to develop gas reserves to provide long-term price protection for Oregon utility customers (Agreement). Under the Agreement, the company was expected to invest between $45 and $55 million per year for five years, for a cumulative total investment of about $250 million. Revenues from the sale of gas produced under the Agreement is credited to utility cost of gas and included as part of the annual Oregon Purchased Gas Adjustment filing. This allows the Company to recover its gas reserve costs, plus a return on the net investment, through customer rates in a manner previously approved by the Public Utility Commission of Oregon (OPUC).
This year the company has invested $15 million, or a cumulative total investment of $176 million in the venture. These gas reserves are expected to provide NW Natural a price hedge on approximately 9 percent of its utility gas purchase requirements for the current year, and are expected to provide long term hedge benefits to customers.
Gregg Kantor, president & CEO of NW Natural, commented: "We continue to reap the long-term advantages of low natural gas prices through our investment in the Jonah Field. Our investment is expected to continue to provide stable prices for a portion of our utility gas supply for years to come."
The Amendment increases NW Natural's interests in sections of the Jonah Field. NW Natural will also continue to have additional drilling rights under the Joint Operating Agreement with TPG, creating an opportunity to develop future reserves.
NW Natural estimates this could provide about 25 billion cubic feet of additional gas that could be developed for its customers in the future.
The Amendment is effective as of March 7, 2014.
Kantor added: "We believe locking in a portion of our supply with lower cost gas is the right thing to pursue on behalf of our customers. Encana was a great company to partner with on this innovative agreement, and we look forward to working with the new owner and the OPUC to explore the potential benefits of further well development at Jonah."
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