GLENWOOD SPRINGS, Colorado - When Encana Oil and Gas (USA) gets its new "gas for cash" drilling program underway, it will be producing fuel for a steel-making company that boasts of making recycled steel products using significantly less energy than other steel manufacturing plants.
Announced in mid-November - and tabbed "gas for cash" by the media - the agreement with steel maker Nucor Corp. of South Carolina also is providing a financial shot in the arm to Encana by splitting the cost of drilling up to 4,000 new wells in the Piceance Basin. No dollar amounts were included in the announcement.
The drilling, according to Encana, is to take place in Encana's 50,000-acre Big Jimmy federal unit. It's an area of combined leases on BLM and private land straddling the Garfield and Rio Blanco county line, about three miles west of Colorado Highway 13 between Rifle and Meeker, according to spokesman David Boyd of the U.S. Bureau of Land Management.
Boyd said there currently are more than 300 wells in the unit, which was formed in 2010 by combining four existing units into one.
A statement issued by Encana reported that the deal will more than double the company's number of wells in the Piceance Basin, and provide Nucor with a reliable source of natural gas for its factories.
"The 50 percent working interest provides them with a steady supply of gas at a moderate price," wrote Encana spokesman Doug Hock in an email to the Post Independent. "It's a physical hedge against having to go into the market at a future date to purchase gas at potentially higher prices."
But the pace of drilling is not set by the agreement, said Hock.
"It will vary by year," Hock wrote. "Encana and Nucor will jointly decide each year how many wells will be drilled within a specified minimum and maximum."
Part of the decision about the wells, he said, will be based on the price of natural gas. If the price falls below a predetermined threshold, drilling can be suspended by either company, according to the agreement.
The threshold price level, Hock added, "is not something we've publicly disclosed."
What is public knowledge, he said, is the expectation that the deal will mean a heightened rate of activity in the Piceance Basin.
"From a rig perspective," Hock said, "it will likely mean two additional rigs in 2013, three additional rigs in 2014 and four or more rigs thereafter. For each new rig added, we estimate an additional 100 to 120 direct and indirect jobs in the area."
Encana currently is running five drilling rigs in Garfield and Rio Blanco counties.
The company also has a workforce of 240 at its new office building in Parachute.
The cash boost provided to Encana by Nucor apparently was needed.
"This agreement gives Encana the cost certainty to execute our long term development plans while also providing Nucor with a sustainable competitive advantage in natural gas energy costs," said Jeff Wojahn, Encana's president of USA Operations, in the release.
Calls to Nucor for comment about this story were not returned.
But Nucor's Chairman and CEO, Dan DiMicco, noted in a statement, "We are always searching for ways to improve our competitive position." He predicted that the deal with Encana will help the company weather possible future fluctuations in gas prices.
Nucor, which has facilities in 22 states, according to the company website, has developed a process for turning molten steel directly into steel sheets in one step. The company claims this uses 95 percent less energy and "emits less than one-tenth the greenhouse gases" attributed to more traditional steel making plants.