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EXCO to Buy Marcellus Acreage from Chief Oil

EXCO Resources Inc. plans to add to its Marcellus Shale portfolio under a $459.4 million agreement with Chief Oil & Gas LLC.

The acreage, to be purchased from Chief and some related parties, now produces about 40 MMcf/d gross (16 MMcf/d net) from 15 producing wells. Eleven wells await completion. EXCO also would acquire more than 50,000 prospective net acres, primarily in Lycoming and Sullivan counties in northeastern Pennsylvania.

The property being acquired is within an area of mutual interest (AMI) established last year by EXCO's existing Appalachian Basin joint venture with BG Group plc (see Daily GPI, July 1, 2009). BG Group has the right to purchase one-half of EXCO's acquisition under terms of their AMI.

"Assuming BG Group elects to participate, the development of these assets would be governed by our Appalachian joint venture," said EXCO. The purchase would be financed by EXCO, which is based in Dallas.

Once the sale is completed, Chief and Radler 2000 Ltd. together still would own more than 287,000 net acres (500,000 gross) in the Marcellus Shale and would be one of the most active operators, said Chief CEO Trevor Rees-Jones (see Daily GPI, Aug. 21, 2009).

"We believe this position holds substantial natural gas reserves, which can only grow in desirability as our nation turns to readily accessible, abundant and clean-burning natural gas as the primary fuel of the future to grow our economy and support our nation's security, employment and standard of living," he said.

"Chief employees and Chief offices in Wexford and Williamsport, PA, will not be affected by the sale," he added.

"Chief's midstream subsidiary, Chief Gathering, will also not be affected and will continue to develop its planned pipeline infrastructure in Pennsylvania. The proceeds from this sale will allow Chief to expand its development efforts in northeast and southwest Pennsylvania, West Virginia and Maryland."

EXCO and Chief agreed to close the Marcellus transaction into an escrow account pending a waiver from BG Group, which is expected to be obtained by Jan. 14. The transaction has an effective date of July 1, 2010.

Chief to date has drilled 95 wells in Pennsylvania and West Virginia. It expects to exit 2010 operating nine rigs in the Marcellus, not counting nonoperated interests owned in leases and units being drilled by multiple rigs operated by others.

Chief, also headquartered in Dallas, previously was one of the largest leaseholders in the Barnett Shale before selling most of the assets to Devon Energy Corp. and Crosstex Energy LP in 2006 (see Daily GPI, June 30, 2006). Chief still retains a position in the Barnett, as well as in Central Utah.

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