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Williams (NYSE: WMB ) has a fever, and the only cure is more Marcellus.
The natural gas production and transportation hulk clearly wasn't satisfied with just one Appalachian tie-up this month. The midstream joint venture established with Atlas Pipeline Partners (NYSE: APL ) on June 1 is nice and all, as it gives Williams a 51% interest in, plus operatorship of, 1,800 miles of natural gas gathering lines in the burgeoning region. But this company is a major gas producer as well, and clearly wants to cash in on some upstream upside.
In 2008, Williams' domestic natural gas production came in just shy of the top 10, falling between EOG Resources (NYSE: EOG ) and Royal Dutch Shell. Toss out the integrated supermajors like top producer BP (NYSE: BP ) , and it jumps into the no. 7 slot. Williams has cut its teeth on other unconventional gas plays like the Barnett shale. It now wants to follow the lead of folks like Range Resources (NYSE: RRC ) and pounce on the Marcellus.
To that end, Williams has formed a joint venture with small cap Rex Energy. To earn a 50% interest in the designated leasehold, Williams will carry 90% of Rex's funding obligations, until the former party has invested $33 million on Rex's behalf. This sort of earn-in structure should be familiar to anyone who followed Chesapeake Energy's (NYSE: CHK ) wheeling and dealing with the likes of BP and Plains Exploration & Production (NYSE: PXP ) last year.
At the end of the day, this is a modest commitment of funds by Williams. If the company sees strong results, though, I imagine there will be further Marcellus forays in the firm's future.