Potato Creek Enters Lease Agreement to Develop Marcellus Shale Acreage
South Jersey Industries announced that Potato Creek, LLC has entered into a lease agreement with an experienced exploration and production company to develop the deep mineral rights on over 21,000 acres of property in the Marcellus Shale in western Pennsylvania. SJI's wholly owned subsidiary, South Jersey Resources Group, LLC, is a minority partner in Potato Creek.
In addition to receiving an upfront lease payment, Potato Creek has retained certain royalty and carried working interest rights that provide an opportunity to boost returns based on natural gas production on the property. The upfront lease payment will add an estimated 15 cents to SJI's earnings per share over the life of the lease.
"Currently we have a successful commodity marketing and shallow well program at Potato Creek in western Pennsylvania," explained Edward Graham, SJI's Chairman and CEO. "Leasing the deep mineral rights that we control to an experienced E&P company enables us to begin realizing the value of this asset for our shareholders without incurring the risks and costs associated with drilling this acreage ourselves," continued Graham.
Penn State University geoscientist Terry Engelder said early in November that, based on several common industry assumptions, he estimates 363 trillion cubic feet of natural gas could be recovered over the next few decades from the 31-million-acre core area of the Marcellus region, which includes southern New York, Pennsylvania, West Virginia, eastern Ohio and western Maryland.
Engelder’s study of Potato Creek's acreage suggests that, due to a very high accessibility factor, recoverable natural gas could range from 275 billion cubic feet to 725 bcf, potentially providing a significant royalty and working interest income stream from future natural gas production to SJI.