Nucor have entered into a long-term agreement with Encana Oil & Gas (USA) Inc for an onshore natural gas drilling programme in the continental United States.

The plan is to ensure a reliable, low cost supply of natural gas for Nucor’s 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 price volatility and overall energy demand for its manufacturing operations. The agreement will ensure a sustainable competitive advantage in natural gas costs for Nucor's DRI facility currently under construction in Convent, Louisiana, which is on track for start-up in mid-2013 and will significantly increase Nucor's demand for natural gas. This new facility is an important phase in Nucor's raw material strategy of providing 6-7Mst/y of low cost, high quality iron units to its EAF steel mills.

Nucor may build additional DRI capacity at the site in Louisiana, further boosting natural gas demand. Additionally, Nucor currently is a substantial consumer of natural gas at its steel manufacturing operations located throughout the USA. The drilling of natural gas wells resulting from the two agreements is expected to provide enough natural gas to equal Nucor's demand at all its steel mills in the USA plus two DRI facilities, or even three DRI plants.

Although it is not possible to guarantee gas 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 by more than 60% modelled by Nucor for investing in gas wells.