Williams Cos., which is both an explorer and midstream operator in the Marcellus Shale, last week agreed to pay $501 million in cash to add 42,000 net acres to its leasehold in Susquehanna County, PA.

The Tulsa-based producer also leased 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 are 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 by Williams earlier this month (see NGI, May 10). Updated guidance is to be issued when the company releases its 2Q2010 earnings report.

In a separate transaction announced on Friday, Penn Virginia Corp. (PVA) agreed to pay an estimated $19.5 million in cash to add nearly 10,000 net acres to its Marcellus Shale leasehold. The producer, which would have 45,000 net acres once two separate transactions close, also will gain an overriding royalty stake on a portion of the new acreage.

With the two transactions PVA has “expanded our Marcellus Shale acreage position from approximately 35,000 net acres to 45,000 net acres…at a very attractive cost,” said CEO A. James Dearlove.

The first acquisition is with an undisclosed private producer that jointly operates in the shale play with PVA. Most of the acreage is in Pennsylvania’s Potter, Somerset and Tioga counties. It includes about 7,900 net acres with Marcellus Shale rights and another 23,000 net acres with deeper rights.

In connection with the first transaction, PVA granted the seller a 1.5% overriding royalty interest on the acquired acreage. Taking into account the override, PVA’s net revenue interest in the joint venture acreage is estimated at 84%.

The second transaction is with another privately held producer, also undisclosed. Most of the newly acquired acreage is in Potter County, PA, covering an estimated 2,100 net acres, with rights to the Marcellus Shale and all other formations.

“We plan to begin testing the acreage in these areas later in 2010,” said Dearlove. “In addition, we continue our leasing efforts and our review of other acquisition opportunities, as we seek to establish a significant presence in this emerging play over the next few years.”

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