Williams is building its position in the Piceance Basin of Colorado, its most prolific natural gas play, in a $285 million cash agreement with SandRidge Energy and other parties. The transaction is expected to close by the end of June.

The assets, said Williams, represent more than 1.9 Tcfe of probable and possible reserves on 24,000 net acres at 10-acre spacing. Williams currently produces more than 600 MMcf/d of gas in the Colorado basin, with 26 rigs in operation. Williams' estimated proved, probable and possible (3P) reserves in the basin now total 7.3 Tcf.

The acreage covered by the agreement is contiguous to Williams' existing 17,500 net acres of leasehold and 48 producing wells in the Ryan Gulch area of the Piceance Basin Highlands in Rio Blanco County, CO. Williams currently owns 170,000 net acres in the basin.

"This bolt-on acquisition adds reserves at an attractive cost in an area where we have a long history of value creation and responsible development," said Williams CEO Steve Malcolm. "The abundant opportunities we expect from this acquisition extend beyond the reserve additions -- and they are well within our reach. We expect this position to create additional long-term value from all of Williams' primary business lines," exploration and production, midstream and gas pipeline.

The acquired assets are expected to increase the company's probable and possible reserves in the Piceance Basin by more than 42% to 6.4 Tcfe from 4.3 Tcfe, based on year-end 2007 estimates. Williams estimated it had 2.8 Tcfe of proved reserves in the basin at the end of last year.

Total company-wide 3P reserves at year-end 2007 were estimated at 11.4 Tcfe.

"This acreage fits hand-in-glove with our existing Highlands operations," said Ralph Hill, who leads Williams' exploration and production segment. "We expect the additional acreage to provide us with greater flexibility regarding rig locations and better opportunities to consolidate and centralize infrastructure.

"When you look down the road, this acreage at 20-acre spacing puts another 1,300 locations in our long-term drilling portfolio. That number could double if 10-acre density spacing can be applied in Ryan Gulch," Hill said.

Along with the reserves and acreage, the acquisition includes related gathering and treating facilities valued at $35 million, as well as 38 producing wells. Existing and future production volumes are expected to flow to the Willow Creek gas-processing plant, which Williams is now constructing. Williams also has expanded its Northwest Pipeline, which serves the plant.

About two-thirds of the acreage is located in an area of mutual interest in which Williams participates with a third party. By agreement, the undisclosed third party has the option to purchase from Williams a 49% interest in the acquired assets.

Hill alluded to Colorado's regulatory environment for producers, which is evolving as the state revamps its oil and natural gas rules (see NGI, April 7). Some producers, including EnCana Corp., have indicated that if the rules become more stringent, they may reduce their activity in the state (see NGI, April 28).

"We are committed to working with regulators as they refine and put into place rules that govern our industry," said Hill. "It's important that we continue to have a meaningful voice in that process. We strive day in and day out to demonstrate what responsible development looks like and how it can benefit the economic prosperity of the state while respecting the land and the people who live on it."

The transaction allows Oklahoma City-based SandRidge to concentrate its gas exploration efforts in three areas: the West Texas Overthrust, which includes the Pinon Field prospect; the Cotton Valley trend in East Texas; and the Texas Gulf Coast. Net proceeds from the sale are estimated at $140 million, SandRidge said.

©Copyright 2008 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.