Tulsa, Oklahoma-based integrated E&P company Williams Co. Inc. (NYSE: WMB) has nearly doubled its holdings in the Marcellus shale with an acquisition of 42,000 net acres in northeastern Pennsylvania from privately held, Houston-based Alta Resources LLC and global private-equity firm Denham Capital Management LP for $501 million in cash. The acquisition is the company’s largest in 2010.

Williams is also purchasing a 5% overriding royalty interest on the approximately 48,500 gross acres associated with the transaction for $84 million, which reduces the royalty burden. Additionally, the company is leasing some 8,000 net acres in another area in Pennsylvania, which will boost its total holdings in the Marcellus to 94,000 net acres, at an average cost of $7,000 per acre.

The acquired acreage from Alta Resources and Denham is primarily in Susquehanna County, and contains an estimated 1.2 trillion cu. ft. equivalent in total net reserves potential. Gas in place is approximately 100- to 130 billion cu. ft. equivalent per section.

Williams anticipates investing an additional $55 million in 2010 for drilling, completion, seismic and facilities costs. The company will fund the acquisition and 2010 capital expenditures with cash.

Williams chairman and chief executive Steve Malcolm says the acquisition diversifies the company’s drilling portfolio and “builds on (its) world-class resource in the Piceance Basin.”

Malcolm continues, “The new position is also consistent with our strategy of moving the overall Williams businesses toward a large-scale presence in the Marcellus shale. 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 (LP).” Alta Resources’ expertise in mapping shale plays, specifically Fayetteville and Marcellus, was a key factor in the acquisition.

Alta, led by Joe Greenberg, was formed in 1999 to explore for oil and gas in the U.S. Alta has a field office in Montrose, Pennsylvania, and has drilled or participated in more than 150 wells in Arkansas, Texas, Louisiana and Alabama, with an overall success rate of 95%.

Alta’s partners in the Fayetteville shale in Arkansas were Contango Oil & Gas Co. (NYSE Amex: MCF), Houston, and George P. Mitchell, founder of Mitchell Energy, which was sold to Devon Energy Corp., Oklahoma City, (NYSE: DVN) in 2001.

In February 2009, Alta and Denham entered a partnership in the Marcellus, with Denham providing additional capital for Alta to purchase natural gas leases from landowners in northeastern Pennsylvania. The partnership enabled Alta to expand its lease position and commence drilling and operations in the shale play.

Denham Capital managing partner Carl Tricoli says, “This partnership was Denham’s first foray into the Marcellus. Through Alta, we partnered with a proven leader in shale development to take advantage of the basin’s cost-competitive production and proximity to key gas markets.”

Denham Capital has approximately $4.3 billion of invested and committed capital.

The deal is expected to close in third-quarter 2010.

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