Portland, OR-based NW Natural said Friday it has signed a $250 million deal with a unit of Calgary-based Encana Corp. for the joint venture development of natural gas reserves in Wyoming. The gas-only utility said it expects the deal to provide long-term supplies for the vast majority of its 674,000 customers in western Oregon. Its customers in southwest Washington state will not be involved.

NW Natural's utility has filed with the Oregon Public Utility Commission (PUC) for approval of the deal.

The announcement came as the holding company for the gas utility announced $72.7 million ($2.73/share) profit in 2010, a 3% decline compared with $75.1 million ($2.83) in 2009. Earnings in 4Q2010 were $29.6 million, a 6% decline compared with $31.4 million in 4Q2009.

In the Encana deal, NW Natural will pay $45-55 million annually for a five-year period, or a total of $250 million to cover expected drilling costs, in exchange for working interests in specific Encana-owned sections of Wyoming's Jonah Field. The sections include both future and currently producing wells, a utility spokesperson said.

"It is almost like a rate base type of investment," said David Anderson, CFO of NW Natural. "It is up to us to make sure the gas gets to our citygate." The utility has a fixed price of $5.15/Dth for its 30-year life, Anderson said. "That price is lower on average than what our customers have been paying for the past 12 years."

The Wyoming gas reserves should save Oregon customers more than $50 million on a net present value basis over the life of the agreement, according to NW Natural's estimates. "The Jonah Gas Field is considered one of the 10 largest gas fields in the United States [more than 2 Tcfe] of proved reserves," a NW spokesperson said.

During the first 10 years of the joint venture, NW Natural said it expects the volume of gas produced to provide about 8-10% of its average annual supply requirements for its Oregon-Washington customer base. These supplies will come from areas around Rock Springs, WY.

NW Natural said it expects a hearing at the Oregon PUC in April and approval to make the joint venture effective May 1. If approved, the gas reserve expenditures, cost of capital and associated operating costs will be included in utility rates on an annual basis.

"The company intends to finance the joint venture with internal cash flows and other long-term financing as necessary," the spokesperson said.

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