Williams diversifies with major oil play

Williams has announced a deal to acquire more than 85,000 acres in one of the biggest onshore oil plays in the country in a move to more than triple oil production for a company better known in Western Colorado for developing natural gas.

Williams announced an agreement to acquire from private owners a total of 85,800 acres on the Fort Berthold Indian Reservation in North Dakota. The deal, valued at $925 million, is expected to close by the end of the year.

The properties include estimated reserves of 185 million barrels of oil in the Middle Bakken and Upper Three Forks shale formations. The deal also includes 24 existing wells producing a total of 3,300 barrels of oil daily.

Williams plans to invest $60 million in 2010 and $200 million to $300 million in 2011 in drilling and development in the area. The company plans to triple the number of drilling rigs operating in the area from three to six by 2012 and expects new leases to produce more than 20,000 barrels of oil daily by the end of 2012.

The company expects to fund the acquisition and capital expenditures from cash on hand, including the proceeds of a deal in which it sold its natural gas gathering and processing facilities in Western Colorado to a subsidiary partnership for $782 million.

Ralph Hill, president of Williams exploration and production business, said the latest acquisition diversifies the company in terms of both its products and geographic operations.

By 2013, Williams expects to generate about 25 percent of its revenues from exploration and production from oil, up from 7 percent this year.

“This latest acquisition gives us a significant position in the best geologic portion of the strongest onshore oil play in the United States, based on our geologic and engineering analysis,” Hill said.

Steve Malcolm, president, chief executive office and chairman of Williams,  said the technological advances used to develop natural gas in the Piceance Basin of Western Colorado will transfer to the Bakken shale formations, turning what was exploration into development.

The acquisition in North Dakota follows the acquisition of about 100,000 acres over the past 18 months in the natural gas-rich Marcellus shale formation in Pennsylvania. Williams remains a leading natural gas producer in the Piceance Basin of Western Colorado. The company operates 12 drilling rigs and produces more than 680 million cubic feet of natural gas a day in the region.

Said Hill: ”We are now positioned in three of the country’s most attractive growth areas: the Piceance, the Marcellus and now the Bakken.”