NUCOR AND ENCANA INK LONG TERM AGREEMENT FOR ONSHORE NATURAL GAS DRILLING
Nucor Enters Long-Term Natural Gas Agreement
CHARLOTTE, N.C., Nov. 6, 2012 /PRNewswire/ -- Nucor Corporation (NYSE: NUE) announced today that we have 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 we believe will ensure a reliable, low cost supply of natural gas for our 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.
By entering into this new agreement, Nucor will be better able to manage its exposure to natural gas volatility and overall energy demand for its manufacturing operations. The agreement will ensure a sustainable competitive advantage in natural gas costs for Nucor's direct reduced iron facility currently under construction in Convent, Louisiana, which is on track for startup in mid-2013 and will significantly increase Nucor's usage of natural gas. This new facility, together with our ability to ensure a long-term low cost of natural gas, is an important phase in the execution of Nucor's raw material strategy of providing 6-7 million tons per year of low cost, high quality iron units to our steel mills. Nucor may build additional DRI capacity at the site in Louisiana, further boosting natural gas usage. Additionally, Nucor currently is a substantial consumer of natural gas at its steel manufacturing operations located throughout the United States. 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 our steel mills in the U.S. 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. In addition, the production of the wells that have thus far been drilled and are producing under the 2010 agreement is exceeding the expectations that Nucor modeled for that investment by more than 60%.
Commenting on the transaction, Nucor's Chairman and CEO, Dan DiMicco noted, "We are always searching for ways to improve our competitive position and drive sustained value creation over cycles. The increased exposure to natural gas prices that will accompany our current and potential DRI production, combined with the tremendous advances that have been made in the natural gas industry, have created a unique opportunity to leverage our strong balance sheet to create what we believe will be a lasting competitive advantage for Nucor. This is a win-win proposition for both Nucor and Encana, and we look forward to a long and productive relationship."
Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products produced include: carbon and alloy steel - in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Nucor, through the David J. Joseph Company, also brokers ferrous and nonferrous scrap. Nucor is North America's largest recycler.
Certain statements contained in this news release are "forward-looking statements" that involve risks and uncertainties. The words "believe," "expect," "project," "will," "should," "could" and similar expressions are intended to identify those forward-looking statements. Factors that might cause Nucor's actual results to differ materially from those anticipated in forward-looking statements include, but are not limited to: (1) the sensitivity of the results of our operations to prevailing steel prices and the changes in the supply and cost of raw materials, including scrap steel; (2) market demand for steel products; (3) energy costs and availability; and (4) competitive pressure on sales and pricing, including competition from imports and substitute materials. These and other factors are outlined in Nucor's regulatory filings with the Securities and Exchange Commission, including those in Nucor's December 31, 2011 Annual Report on Form 10-K. The forward-looking statements contained in this news release speak only as of this date, and Nucor does not assume any obligation to update them.
SOURCE Nucor Corporation
Views: 1082
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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It's a hybrid agreement as far as the drilling carry. But I think the gas can be sourced from wells other than those drilled under the carry portion of the agreement. Regardless of the specifics EnCana and other energy companies may use this type of agreement to maintain their financial positions and take away commitments. I tend to look at the positives because attempting to address any fear on the lease side is tilting at windmills IMO. I'm not concerned about the President or the EPA shutting down fracking. To me that's a partisan political scare tactic that has no basis in fact.
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Permalink Reply by dbob on
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Skip I'm not concerned about the EPA shutting down fracking either, but I can see it getting permitted to death - Standards that regulate fracing, but allow for operational flexibility would probably be ok. standards which call for a significant delay in fracing while permits are processed won't work.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I don't think that will happen, dbob. We'll see soon enough I'll wager.
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Permalink Reply by dbob on
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The notification process - now mandatory for all gas wells that are fracked or refracked is not particularly a burden.
Some of the recent rules that have come down on Federal land appear to add $150,000 or so, roughly to the cost of a well. There are a lot of other things that could be added, and if requiring prior approval, could slow things down. That said, I don't see anything like that happening on a wide scale until late 2014 at the earliest, as the HF study hasn't given them much in the way of results yet
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Permalink Reply by tc on
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The deal is barely 1 year old and is already in trouble.
Nucor Corp. (NUE:US), the largest U.S. steelmaker by market value, said it suspended a natural-gas drilling program with Canada’s Encana Corp. (ECA) because of “weak” prices for the fuel.
The move will reduce Nucor’s 2014 capital expenditure by about $400 million, the Charlotte, North Carolina-based company said in a statement today. In July it had forecast spending of $1.1 billion next year.
In 2012, Nucor agreed to pay Encana more than $3 billion to get access to gas for more than 20 years. Nucor sought low-priced gas for a plant it’s building in Convent, Louisiana, to produce direct reduced iron, a steelmaking raw material.
Gas for January delivery fell 1 percent to $4.24 per million British thermal units at 9:48 a.m. in New York. The price will average $4.04 next year and $4.37 in 2015, according to the mean of analysts’ estimates compiled by Bloomberg.
http://www.businessweek.com/news/2013-12-17/nucor-suspends-gas-dril...
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Permalink Reply by jffree1 on
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Not surprised. EnCana has been saying since November that they were shifting to oil/wet gas targets and laying off people in Tx. & Colorado has already happened or will be soon.
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Permalink Reply by Joe Aldridge on -
Hey Skip,
How will the EPA take-over of all surface water affect fracking? Is this a way to stop fracking? If you can't use surface water then where are the companies going to get their water?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Has the EPA "taken over" all the surface water, Joe?
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Permalink Reply by Joe Aldridge on
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That's what was on the news a week or so ago. Acording to the press release the report claimed the EPA considers all surface water to be under their control. See the link below:
http://www.thenewamerican.com/tech/environment/item/17164-tna-onlin...
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Permalink Reply by dbob on
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EPA is in the process of proposing new definitions of water of the United States for the Clean Water Act. If allowed to continue, it will result in lots of water not previously claimed as waters of he US coming under EPA and corps jurisdiction. However, the primary regulatory interest is in preventing pollution to that water and in limiting dredge and fill activity. With a few exceptions, the right to sue that water is handled at the State level.
That said, particularly for areas of the country that have a lot of HF activity right now, EPA could claim, by the logic it is currently asserting, that they had the right to limit withdrawals t protect downstream waters. I haven't seen anything like that, but it is a reasonable extension of the proposed rule.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Joe, The New American is not on my list of reliable news sources. Too partisan for my tastes. When the EPA takes over all the surface water and tells the energy industry that it can not be used for hydraulic fracture stimulation, get back to me and we can have that duscussion. Thanks for the background, dbob.
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Permalink Reply by dbob on
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FYI, change "sue" to use. Oh, and the logic EPA is using would also provide for wide ranging federal jurisdiction on groundwater.
and IMHO, the first thing out of the bag when the current proposed rule comes out is to sue and sue to get to the supreme court. I think the whole thing is regulatory over-reach.
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