Williams Cos., which has been building its portfolio in the Marcellus Shale, agreed Tuesday to pay $501 million in cash to add 42,000 net acres to its leasehold in Susquehanna County, PA. The Tulsa-based producer also is leasing an additional 8,000 net acres in the state in another "attractive" area.
Together, the acquisitions would boost Williams' Marcellus holdings to about 94,000 net acres at an average cost of $7,000/acre, adding 1.3 Tcfe of total net reserves potential.
"This acquisition establishes Williams with a significant concentrated acreage position in what we believe is the highest resource potential area of the Marcellus," said Ralph Hill, president of Williams' exploration and production (E&P) business. "This is our largest Marcellus acquisition to date -- and for good reason.
"The rock quality, thickness and density of the shale and gas in place are among the best in the basin, and recent results from other operators in the area have consistently exceeded expectations."
The bulk of the acreage, 42,000 net acres, is being purchased from Alta Resources LLC and its partners for $501 million. Primarily located in Susquehanna County in northeastern Pennsylvania, the acreage has an estimated 1.2 Tcfe in total net natural gas reserves potential; gas in place is estimated to be 100-130 Bcfe per section.
Williams also is buying a 5% overriding royalty interest on the 48,500 gross acres associated with the acquisition for $84 million, which reduces the royalty burden.
Additional funds for drilling, completion, seismic and facilities costs would be invested over the next two years as operations expand. About $55 million would be invested this year, almost doubling to $100 million in 2011 and doubling again to $200 million by 2012. Both the leasehold and the capital spending in 2010 is being funded with cash on hand. Subsequent investments would be funded from operating cash flows, Williams said.
Alta's track record in mapping shale plays, particularly its development efforts in the Fayetteville Shale, led to its Marcellus mapping expertise and was one of the key factors in the acquisition, said Hill. Alta also followed a long-term leasing strategy designed specifically for a rational development plan with substantially no near-term lease expirations, he noted.
In addition to the Alta acquisition, Williams also committed to lease around 8,000 net acres in another area of Pennsylvania. Terms of the second transaction, as well as the location of the leasehold, were not revealed.
"Our increasing scale will provide more potential opportunities for bolt-on E&P acquisitions as well as gas pipeline and midstream growth opportunities via Williams Partners," said CEO Steve Malcolm.
The transactions, which are expected to close by the end of September, were not included in 2010-2012 capital expenditure or other guidance provided early this month, Williams noted (see Daily GPI, May 6). Updated guidance is to be issued when Williams releases its 2Q2010 earnings report, it said.
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