Williams has agreed to purchase additional properties in the Piceance Valley east of the company's existing assets from a private company for roughly $258 million. The assets could represent an estimated 795 billion cubic feet equivalent (bcfe) of net reserves. Of the estimated reserves, approximately 150 bcfe are proved. Not including the new properties, Williams currently owns approximately 190,000 net acres in the Piceance Basin.

The purchase covers 21,800 net acres and includes 28 wells currently producing 24 MMcfe/d, related gas and water gathering facilities, 94 approved drilling permits, and more than 800 drillable locations at 10-acre spacing.

Steve Malcolm, Williams' president and CEO sees the acquisition as a bolt-on with potential to quickly add reserves, production, cash flows, and earnings per share. He sees the production as an additional supply source for the company's Northwest Pipeline that runs through the basin as well.

Williams expects after-tax cash-flow returns related to the new properties of approximately 25%, along with an estimated accretion in earnings of 4 cents per share in 2010 and 15 cents per share in 2011.

To mitigate price risk, Williams has entered into new gas price hedges at a Rockies fixed price of $5.23 for 2010 and $5.90 for 2011. The hedges represent about 80% of projected gas revenues from the new properties in these years after correcting for fuel and shrink and direct taxes.

With regard to development, Williams plans to incrementally add drilling rigs to its Piceance operations, with one additional rig tentatively slated for 4Q09, followed by one more in 2010 and two more in 2011. Williams is currently running eight rigs in western Colorado.

Aggregate program development capital related to the acquired areas, including the acquisition capital, is expected to total roughly $273 million in 2009, $130 million in 2010, $219 million in 2011 and additional amounts thereafter.

Williams plans to fund the acquisition, along with $15 million in projected 2009 development costs and $50 million of the 2010 development costs, with cash on hand. Going forward, the company expects to fund the balance of the 2010 and 2011 capital requirements largely through the anticipated cash flow from the properties.

The parties expect the transaction to close near the end of the third quarter.