Natural gas producer, Williams Companies Inc. (WMB), acquired approximately 42,000 net acres in the Marcellus Shale from Alta Resources, LLC and its partners for $501 million.
The net 42,000 Marcellus acres, mainly located in Susquehanna County in northeastern Pennsylvania, represents approximately 1.2 trillion cubic feet of gas equivalent (Tcfe) in total net resource potential and gas of 100 to 130 billion cubic feet equivalent (Bcfe) per section.
The acquisition will nearly double the natural gas producer’s exploration and production (E&P) holdings in the region. Additionally, the company will buy a 5% interest in the properties (approximately 48,500 gross acres) included in the Alta deal for $84 million to reduce royalty obligations.
Williams also plans to lease approximately 8,000 net acres in the area of Pennsylvania. On completion of the deal, Williams will hold 94,000 net acres in Marcellus at an attractive all-in cost of $7,000 per acre. Williams expects the deal to close in the third quarter of 2010.
During the operational process on the newly procured acreage, Williams plans to invest approximately $55 million in 2010, $100 million in 2011 and $200 million in 2012 for drilling, completion, seismic and facilities costs. Williams intends to fund the deal and its 2010 capital expenditure with a portion of its $1 billion of cash on the balance sheet. Going forward, further developments in the Marcellus Shale are likely to be funded through operating cash flows.
This acquisition not only gives Williams a significant Marcellus footprint but also awards it a stanch position in one of the highest resource potential areas of the shale. In addition to diversifying the company’s E&P portfolio, this transaction should also present its affiliate, Williams Partners L.P. (WPZ), with pipeline and midstream growth opportunities to leverage its vertically integrated business model.
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