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PDC Mountaineer Pays $152M for Ohio Marcellus Acreage

PDC Mountaineer (PDCM), a joint venture of Petroleum Development Corp. and Lime Rock Partners V LP, will pay $152.5 million to National Grid plc for Seneca-Upshur LLC, including the rights to an estimated 90,000 net acres in the Marcellus Shale in north central West Virginia, the company said Monday. Closing is scheduled for Monday (Oct. 3), with an effective date of July 1, 2011.

The acreage is primarily in Harrison, Taylor, Barbour, Upshur, Lewis and Randolph counties, with about 10,000 net acres in Mingo and McDowell counties in southwest West Virginia, which is prospective for the Huron Shale, PDC said. The Marcellus acreage is estimated to contain 1.5 Tcfe of net risked resources from about 435 gross horizontal drilling locations. PDCM said it plans to begin development of the Marcellus Shale on the acquired lands next year.

Currently, the assets produce approximately 5.4 MMcfe/d, primarily from the shallow Devonian formation. The existing production has estimated net proved developed producing reserves of approximately 30 Bcfe, and the acreage is 100% held by production from shallow Devonian producing wells included in the acquisition, PDCM said.

"The Seneca-Upshur assets are an excellent strategic fit with our Marcellus assets in West Virginia and provide critical mass and meaningful economies of scale to our operations," said PDCM CEO Dewey Gerdom. At closing of the Seneca-Upshur deal, PDCM's net production from both the Marcellus and Devonian plays will be about 24 MMcfe/d.

PDCM currently operates one Marcellus drilling rig in West Virginia and expects to drill nine wells this year. With the addition of the Seneca-Upshur acreage, PDCM plans to operate one full-time rig to drill a total of 20-25 horizontal Marcellus wells a year beginning in 2012. PDCM said it plans to sell approximately 9,000 net Marcellus acres in Pennsylvania to fund accelerated development of its West Virginia Marcellus assets.

"We believe PDCM is strengthening its production base outside of the Rockies," exploration analyst Irene Haas of Wunderlich Securities Inc. wrote of the acquisition. Because the acquired acreage is close to PDCM's current leases in Harrison, Taylor and Barbour counties, "we expect synergies in operational, midstream and marketing activities," she said.

Seneca-Upshur was acquired by KeySpan Corp. in 2004 in an asset exchange with Houston Exploration Co. (see Daily GPI, May 26, 2004). KeySpan, in turn, was acquired by London-based National Grid in an $11.8 billion deal three years later (see Daily GPI, Aug. 27, 2007).

The sale of Seneca-Upshur, a gas and oil exploration and production company operating primarily in West Virginia and Pennsylvania, "is part of our ongoing program to focus the business on our core regulated gas and electricity transmission and distribution operations and related activities," said National Grid U.S. President Tom King. Seneca-Upshur last year contributed a loss of approximately $7.1 million to National Grid's earnings before interest and tax of $5.6 billion.

Earlier this month PDCM said it had acquired an estimated 30,000 acres in the prospective Utica Shale, primarily in Noble, Monroe, Washington, Morgan and Guernsey counties in southeastern Ohio. The company said it is pursuing additional leasehold opportunities in the wet gas and oil phases of the Utica Shale and could increase its total net leasehold in southeastern Ohio to as much as 100,000 net acres by the end of next year.

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