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Market for Western Pennsylvania's Marcellus shale land changing

| Saturday, May 4, 2013, 12:01 a.m.

There was a time not too long ago when oil and gas companies would gobble up whatever land they could buy in the Marcellus shale.

Those times are long gone.

EQT Corp. is buying nearly 100,000 acres of land in the region, it announced Friday — and it doesn't plan to bother with even half of it.

The Downtown-based gas producer is paying Chesapeake Energy Corp. $113 million in the deal, more than half of it for gas rights on about 99,000 acres of Marcellus and Utica shale land. But only 25,000 acres of Marcellus acreage in Washington, Greene, and Allegheny counties really matter, company officials said. They don't have any plans for the rest, because the leases are about to expire.

“It's all about that particular (Marcellus) area,” said spokeswoman Natalie Cox, noting that it's close to other land that EQT controls and has had success drilling. “That other part is just what I call … a free option. It was part of the package that Chesapeake and their partners had for sale. And we made our bid based only on what we thought we wanted to develop.”

Battle lines are drawn, with drilling companies having divided up most of the profitable gas rights into large clusters — each controlled by one company, experts said. That reduces the number of interested companies for any gas land sale or lease. And many are willing to just let some land go, with a better sense now of what's too far from the sweet spots or the pipeline systems to be highly valuable.

“You can be left stranded if you don't have acreage that you can get into a pipeline,” said Raymond Deacon, Brean Capital LLC's lead analyst for oil and gas production companies. “If you have a small piece of land that doesn't have a lot of contiguous acres around it, it always seems to get lower values, especially when infrastructure is capped.”

Deacon and others said Friday's deal looked like a good one for both companies. Chesapeake — which is selling off land because it's burdened by debt — made money on land it wasn't going to use and may have otherwise lost from expiring leases. EQT got more land in its core area for essentially $2,400 per acre, a solid value.

EQT's current land is worth about $7,000 per acre, said Deacon, who follows the company from his Boston office. So any land it brings in for less than that is a bargain, he said.

EQT also paid $53 million for 10 wells in Washington County as part of the deal.

While Chesapeake got some value, it may not be enough, said Bryan McNamara, an analyst at IHS Inc. in Norwalk, Conn. Chesapeake is peddling large land packages, especially in Pennsylvania, to raise cash, but the deals so far are too small to make a dent, he said.

It announced Monday it would sell 162,000 acres of Marcellus shale rights in northeast Pennsylvania for $93 million to Southwestern Energy Co. At this rate, it will meet only half of its $4 billion sales target, he said.

A Chesapeake spokeswoman declined to comment.

Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or tpuko@tribweb.com.

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