2009-08-05-2009-06-22-2009-06-22

Entered joint venture to acquire 50% interest in 44,000 acres in the Marcellus shale in Westmoreland, Clearfield & Centre cos. in PA.

Closely following a strategic midstream acquisition in the Marcellus shale, Williams Cos. Inc., Tulsa, Okla., (NYSE: WMB) makes its first upstream venture into the play with plans to acquire a 50% interest in Rex Energy Corp., State College, Pa., (Nasdaq: REXX) leasehold interests in Westmoreland, Clearfield and Centre counties in Pennsylvania, covering approximately 44,000 gross and net acres for approximately $33 million, which will be paid through a "drill to earn" structure. "This initial entry of our exploration and production business into the Marcellus is an ideal growth opportunity, given our long experience in developing nonconventional natural gas reserves, such as tight sands, coalbed methane and shale," says Steve Malcolm, Williams chairman, president and chief executive. Rex Energy values the deal at $1,500 per net acre. Williams will drill to earn its 50% interest by incurring 90% of costs and expenses associated with drilling and completion of wells in the area of mutual interest until it has invested $33 million on behalf of Rex Energy and $41 million in its own costs and expenses for a total of $74 million. Williams has until the end of 2011 to fulfill its funding obligations and earn its 50% interest or make a cash payment to Rex Energy for the remaining carry amount that has not been incurred at that time. Williams says it will fund the investments with cash on hand. Once Williams earns its 50% interest, the companies will equally share all costs of joint-venture operations. Rex Energy will continue to operate through the end of 2009, at which time Williams will assume operations. Williams has reimbursed Rex Energy approximately $3.6 million for Williams' share of certain expenses incurred in the joint-venture project areas that Rex Energy previously paid. Ben Hulburt, Rex Energy president and chief executive, says, "I am very pleased to have moved forward with this strategic agreement with Williams. Their demonstrated exploitation of gas shales and proven technical strengths allow us to accelerate our activities in the Marcellus shale, while at the same time conserving our capital. We continue to be very excited about the Marcellus shale potential in these areas and view them as significant components of the company's core growth areas." In early June, Williams entered a midstream joint venture targeting the Appalachian Basin with Atlas Pipeline Partners LP, Moon Township, Pa. (NYSE: APL), acquiring a 51% ownership in the new venture Laurel Mountain Midstream LLC for $125 million, its first entry into the basin. The gathering system includes approximately 1,800 miles of intrastate gas-gathering lines servicing 6,900 wells with an average throughput of more than 100 million cubic feet per day. Additionally, Rex Energy has closed on the acquisition of the 50% interest previously owned by its joint-venture partner in certain areas of Butler County, Pennsylvania, for $4.2 million. This acquisition gives Rex Energy a 100% interest in these areas and increases the company's position by 6,500 net acres to approximately 22,700 gross acres (21,250 net) in this area, or $646 per net acre. These additional acres are primarily in the immediate vicinity of the company's four producing Marcellus shale vertical wells, its recently drilled and completed Marcellus horizontal well and its gas-processing plant. Hulburt adds, "Our partnership with Williams and the recent acquisition of the additional acreage in Butler County reaffirms our long-term commitment to the Marcellus shale development. We believe strongly that we are now well positioned to accelerate this development by leveraging Williams' capabilities in two of our core areas and strengthening our own capabilities in a third area." Jack Aydin, senior managing director with KeyBanc Capital Markets Inc., says he is "encouraged" by the transaction and believes it provides Rex Energy with financing for accelerating development of its Marcellus shale acreage position while maintaining a solid balance sheet and a "very capable partner" that has significant technical expertise in both developing gas resource positions and building out midstream and infrastructure in gas plays.