Williams is continuing its quest to expand operations in the Marcellus Shale by agreeing to jointly develop a natural gas leasehold with Rex Energy Corp.
Under a "drill to earn" agreement announced on Monday, Williams will pay Rex $33 million to acquire a half interest in Rex's 44,000 net acres in Pennsylvania's Westmoreland, Clearfield and Centre counties. Williams agreed to pay 90% of the costs and expenses associated with drilling and completing the wells in the area of mutual interest until it has invested $33 million on behalf of Rex and $41 million in its own costs and expenses.
"This initial entry of our exploration and production business into the Marcellus is an ideal growth opportunity, given our long experience in developing nonconventional natural gas reserves, such as tight sands, coalbed methane and shale," said Williams CEO Steve Malcolm.
Williams has until the end of 2011 to fulfill its funding obligations and earn the 50% stake. The Tulsa-based company plans to fund the investments with cash on hand. Amounts to be spent this year are within existing capital expenditure guidance, Williams officials said.
Once Williams earns its half interest in the leasehold, the two companies are to share all costs of the joint venture (JV) operations, according to their participating interests, which are expected to continue to be split 50/50. Rex currently operates the Marcellus assets in the project areas and would continue to do so until the end of this year, when Williams would take over operations.
The JV agreement with Rex is Williams' second to be announced in the Marcellus Shale this year. Williams and Atlas Pipeline Partners LP created Laurel Mountain Midstream LLC as a JV to own 1,800 miles of intrastate gathering lines in the Appalachian Basin that would service 6,900 wells (see Daily GPI, June 1). Laurel Mountain's anchor customer is to be Atlas Energy Resources, whose Marcellus Shale leasehold totals more than 550,000 acres, including 274,000 acres in southwestern Pennsylvania.
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