Pa. natural gas wells still sought despite price drop

The collapse in natural gas prices since July has taken some of the heat out of gas development in Pennsylvania, but the state's hoard is still in demand.

In a $127.5 million deal announced yesterday, Atlas Pipeline Partners L.P. and the Williams Cos. Inc. formed a joint venture to speed the flow of natural gas from Marcellus shale in southwestern Pennsylvania.

Marcellus shale is a 365 million-year-old layer of rock that starts in New York and arcs through Pennsylvania into West Virginia. It is believed to hold a huge store of natural gas 5,000 to 8,000 feet below ground.

Atlas has headquarters near Pittsburgh, but some executive offices are in Philadelphia.

Williams, an integrated natural gas company in Tulsa, Okla., is paying $90 million to Atlas Pipeline and issuing a $25.5 million note to the joint venture, Laurel Mountain Midstream L.L.C., which will operate Atlas Pipeline's 1,800 miles of lines that gather natural gas from 6,900 wells.

Williams is also paying $12 million to Atlas Energy Resources L.L.C., a natural gas producer that will be the joint venture's anchor customer, for two plants that remove water and other impurities from natural gas before it is shipped to utilities and industrial users.

The venture gets "Williams into one of the largest emerging natural gas plays in North America at an attractive price," Steve Malcolm, Williams' chairman and chief executive officer, said in a statement.

Natural gas producers have maintained their interest in Marcellus shale despite a decline in the price of natural gas to less than $4 per 1,000 cubic fee this week from more than $13 for 1,000 cubic feet in July, during a commodities bubble.

"We don't see this going away. It may have slowed a little bit," said Steven W. Rhoads, president of the Pennsylvania Oil & Gas Association in Harrisburg.

Nationwide, the number of active natural gas drilling rigs has fallen nearly by half since the peak last year, to 868 from 1,620, according to financial research from Jefferies & Co. Inc.

By comparison, the number of rigs drilling in the relatively new development of Pennsylvania's Marcellus shale was down only slightly to 13 in March from 15 at last year's peak, Jefferies said.

So far, drillers have begun work on 325 Marcellus shale wells, said Tom Rathbun, a spokesman for the Pennsylvania Department of Environmental Protection. The state has issued 864 Marcellus shale permits, he said.

Brian Begley, vice president of investor relations for Atlas, said the company expected this year to drill 110 to 120 Marcellus wells. The company has leased 274,000 acres in southwestern Pennsylvania, mostly in Fayette and Greene Counties. Marcellus "will be a large part of production this year," he said. In 2008, the company produced an average of 92.6 million cubic feet of natural gas per day.