Steelmaker Nucor (NYSE: NUE ) has entered into an agreement with the U.S. branch of Canadian energy producer EnCana (NYSE: ECA ) for the latter to supply Nucor with natural gas for its steel operations.
The deal, detailed in a press release from Nucor, involves an onshore drilling program in the United States that Nucor hopes will provide it with a reliable, low-cost supply of natural gas to meet its needs for more than 20 years.
Both companies will share costs . A filing Nucor made with the SEC says the company expects to invest $542 million over the next three fiscal years and $3.64 billion over the estimated 13- to 22-year term of the agreement.
Encana will operate the drills in similar fashion to another smaller onshore drilling deal signed by the companies back in 2010.
The companies retain the right to stop driling if natural gas prices fall below a "predetermined threshold."
Said the company: "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%."
The latest deal comes on the heels of Nucor's third-quarter earnings, which topped analyst expectations.