Rice Energy Inc.on Monday reinforced its position in southwest Pennsylvania and added to an inventory focused strictly on two areas in the Appalachian Basin, announcing a purchase and sale agreement to acquire 22,000 net acres in Greene County, PA, from a Chesapeake Energy Corp. subsidiary for $336 million. 

The deal includes 12 Marcellus Shale wells, with seven of those currently producing 20 MMcf/d and another five in various stages of development.

Prior to the purchase agreement, Rice Energy had about 90,000 net acres split evenly between Belmont County, OH, and Washington and Greene counties, PA (see Shale DailyDec. 17, 2013). The acquisition increases Rice's Marcellus acreage by 24% and adds 152 drilling locations to its previous inventory of 325 locations in the play.

"This transaction is consistent with our strategy of acquiring high-quality shale assets," said COO Toby Rice. "We are adding a significant number of drilling locations within an area we have been successfully developing since 2009. The acquired assets provide us with a foothold to pursue additional leasehold opportunities and further grow our inventory of low-risk, high-return projects." 

Greene County is one of Pennsylvania's most heavily drilled areas, where 1,300 permits have been issued, according to the Pennsylvania Department of Environmental Protection. Located in southwest Pennsylvania, in a region of liquids-rich production, Rice Energy is acquiring a stretch of land that Chesapeake previously said was turning out mostly dry gas.

That fits into Rice Energy’s focus on pipeline-quality gas and a strategy driven by cash flow and PV-10 (see Shale DailyJune 5). Wells Fargo Securities analyst Gordon Douthat, along with others, called the deal a good one for both companies, saying Rice "paid only for production with very little for undeveloped acreage in a high quality, de-risked area of the Marcellus." As of June, all of Rice Energy’s 350 MMcf/d of gross operated production came from the Marcellus and Monday's announcement increases its position in the play to 66,000 net acres, according to analysts at Tudor, Pickering, Holt & Co.

For Chesapeake, the move was not a surprise. The company has been focused since last year on cutting the fat out of its portfolio, reducing the complexity of its balance sheet and monetizing certain assets to selectively develop others (see Shale DailyJune 19). The company said in May that it was readying land in southwest Pennsylvania, Texas, Oklahoma and Wyoming for sale (see Shale Daily, May 19), while it has continued to spin-off other aspects of its business (see Daily GPIJune 9).

Douthat said Chesapeake was running a couple rigs across southwest Pennsylvania earlier this year, but had stopped drilling there in recent months.

Rice Energy said the deal is expected to close by August and development across the acreage is expected to get underway late next year. The company has plans to acquire 30,000 net acres this year. Last month, Rice signed an agreement with Belmont County, OH, to acquire an additional 424 gross acres for $3.4 million (see Shale DailyJune 13).

Its deal with Chesapeake will be funded by cash on hand, borrowings under its revolving credit facility and the issuance of more than 20 million primary and secondary shares.