10. GAS RESERVES

We entered into our original agreements with Encana Oil & Gas (USA) Inc. (Encana) in 2011 to develop and produce physical gas reserves and provide long-term gas price protection for utility customers. Encana began drilling in 2011 under these agreements. Gas produced from working interests in these gas fields is sold at prevailing market prices, with revenues from such sales, less associated production costs, credited to the utility's cost of gas. The cost of gas, including a carrying cost for the net rate base investment, is part of NW Natural's annual Oregon PGA filing, which allows us to recover our costs through customer rates.

On March 28, 2014, we amended the original gas reserve agreements in order to facilitate Encana's proposed sale of its interest in the Jonah field to an affiliate of TPG Capital (TPG). Under the amendment, we ended the drilling program with Encana, but increased our assigned ownership interests in certain sections of the Jonah field and retained the right to invest in additional wells with the new owner. Our investment of $178 million under the original deal earns a rate of return and provides long-term gas price protection for our utility customers.

During the second quarter of 2014, we were notified by TPG's affiliate, Jonah Energy LLC, of investment opportunities in the sections of the Jonah field where we have ownership interests. The amended agreement allows us to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at our proportionate ownership interest for each well in which we invest. At this time, we have agreed to participate in selected wells to be drilled in 2014 and may have the opportunity to participate in additional wells in future years. We are seeking regulatory approval in Oregon for these additional investments and expect to make a formal application to the OPUC in the third quarter with the resulting proceeding resolved either in late 2014 or early 2015. In addition to seeking cost recovery for additional wells already drilled, we are also seeking approval of a general framework, including an annual prudence review, to determine whether we participate in the funding of future wells on a well-by-well basis.

Gas reserves acted to hedge the cost of gas for approximately 8% and 6% of our utility's gas supplies for the six months ended June 30, 2014 and 2013, respectively. Our utility gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities on the balance sheet. The following table outlines our net investment in gas reserves:



	June 30,				December 31,
In thousands	2014		2013		2013
Gas reserves, current	$	20,373	$	15,324	$	20,646
Gas reserves, non-current	157,535		126,215		140,573
Less: Accumulated amortization	27,255		12,453		18,575
Total gas reserves	150,653		129,086		142,644
Less: Deferred tax liabilities on gas reserves	34,828		39,963		42,117
Net investment in gas reserves	$	115,825	$	89,123	$	100,527