Quest Resource Corp., which until now has concentrated its exploration efforts in the Cherokee Basin of Kansas and Oklahoma, made good on its plan to expand into the Marcellus Shale in an agreement to purchase privately held PetroEdge Resources LLC for $140 million.

PetroEdge, whose exploration is focused in the Appalachian Basin across West Virginia, Pennsylvania and New York, controls about 78,000 net acres that hold estimated proved reserves of 99.6 Bcfe. Current output is about 3.3 MMcfe/d. Nearly 67,000 of the net acres are in the heart of the Marcellus Shale play, with nearly 41,000 net acres spread across Ritchie, Wetzel and Lewis counties, WV; 22,000 net acres in Lycoming County, PA; and 3,000 net acres in Steuben County, NY.

“We believe the future for Quest is bright as we build a new core area of operations in the Appalachian Basin,” said CEO Jerry Cash. The assets “will add geographic and geologic diversity and will offer numerous low-risk development opportunities.”

Quest Resource is said to be the largest producer of natural gas in the Cherokee Basin of southeastern Kansas and northeastern Oklahoma, where it controls about 560,000 net acres. In the Cherokee Basin Quest operates more than 2,300 wells that produce more than 55 MMcfe/d net.

In May Quest Resource terminated an agreement to acquire Pinnacle Gas Resources Inc., which would have given it a position in the Rocky Mountains (see Daily GPI, May 20). At that time Cash said Quest Resource would pursue opportunities in the Marcellus Shale instead.

Combined with its existing acreage and development rights in the Appalachian Basin, Quest Resource said it would own the right to develop 119,000 net acres within the region once the PetroEdge acquisition is completed. Closing is expected by mid-July.

In the past three years Houston-based PetroEdge has drilled and completed 112 wells on its properties, all of which have been productive, Quest said. In connection with the acquisition PetroEdge plans to enter a 12-month transition services agreement with Quest, during which time PetroEdge is expected to advise Quest on operations and development of the properties.

Quest Resource conducts substantially all of its natural gas and oil production operations through Quest Energy Partners LP and its natural gas transportation and processing operations through Quest Midstream Partners LP (see Daily GPI, Dec. 27, 2006). Quest Energy Partners agreed to purchase all of PetroEdge’s proved developed reserves and current production simultaneously with the closing of the acquisition. Quest Midstream also was give the right of first offer on gathering and processing the production.

In addition to the PetroEdge acquisition, Quest Resource completed a $4 million farm-out agreement with a private company that gives it the right to develop 30,000 net acres in Potter County, PA, for one year. At the end of the farm-out period, Quest Resource has the option to acquire all of the deep rights on the acreage for an additional payment of $6.5 million. If it does not exercise the purchase option, it would be allowed to keep any acreage that was developed during the farm-out period.

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