Zacks_Analysts' Blog : NW Natural, EnCana in JV - Analyst Blog

Portland-based natural gas utility Northwest Natural Gas Co. (NWN) has entered into a partnership with Canada’s largest natural gas producer EnCana Corp. (ECA) for a joint venture to develop gas reserves from the Jonah field in Wyoming’s Green River basin. The 30-year agreement will provide long-term supplies for Northwest Natural’s Oregon utility customers.

The Jonah field – considered to be one of the ten largest gas fields in the U.S. with over 2 trillion cubic feet equivalent of proven reserves – lies about 65 miles north of Rock Springs in southwestern Wyoming.

The deal, which is likely to become effective May 1 following a hearing from the Oregon Public Utility Commission by late April, calls for Northwest Natural to invest $45–55 million per year over five years (for a total investment of about $250 million) that would cover expected drilling costs.

In return, the natural gas distributor – which caters to more than 670,000 customers in Oregon and southwest Washington – will get working interests in certain sections of the Jonah Field, covering both future and currently producing wells.

Northwest Natural expects up to 10% of the company’s average annual requirements for its utility customers to be supplied in the first 10 years of the 30-year agreement and estimates savings for ratepayers to be in excess of $50 million (in gas costs) over the duration of the pact.

Northwest Natural is the largest independent natural gas utility in the Pacific Northwest with approximately $2.6 billion in total assets, while Calgary, Alberta-based EnCana is a focused pure-play natural gas exploration and production (E&P) company holding a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays.

EnCana shares currently retain a Zacks #3 Rank, which translates into a short-term 'Hold' rating whereas Northwest Natural has a Zacks #4 Rank (short-term Sell rating). Longer-term, we are Neutral on both the stocks.